Bank of England's chief economist warns of inflation risk

Bank of England’s chief economist warns inflation could be ‘nearer four per cent than three per cent’ by the end of the year and ‘everyone will lose’ if it continues to spike

  • Andy Haldane said ‘everyone would lose’ if inflation level continues to increase
  • Mr Haldane said inflation could be ‘nearer to 4% than 3%’ by the end of the year
  • Bank of England’s chief economist said risk of high inflation levels ‘is rising fast’  

Inflation levels could be ‘nearer four per cent than three per cent’ by the end of the year, according to the Bank of England’s departing chief economist. 

Andy Haldane warned that ‘everyone would lose’ if there is a significant spike in inflation, with families facing higher living and borrowing costs. 

In a speech to the Institute of Government think tank, Mr Haldane said the risk of high inflation levels ‘is rising fast’.

Andy Haldane, the Bank of England’s chief economist, warned inflation levels could be ‘nearer to four per cent than three per cent’ by the end of the year

Mr Haldane warned that ‘everyone would lose’ if there is a significant spike in inflation, with families facing higher living and borrowing costs

Last month, the UK saw Consumer Price Index (CPI) inflation rise to 2.1 per cent, ahead of analyst forecasts and above the central bank’s two per cent target rate.

In the US inflation has surged to 4.2 per cent – the highest rate since 2008 – stoking speculation of a shift in monetary policy.

Mr Haldane, who is set to leave the Bank of England after 32 years, said there are still no signs that inflation levels will be ‘significantly de-anchored’ from the two per cent target rate. 

But he warned that the current situation is delicately balanced and could shift. 

He said: ‘Overall, inflation expectations and monetary policy credibility feel more fragile at present than at any time since inflation-targeting was introduced in 1992.

‘By the end of this year, I expect UK inflation to be nearer four per cent than three per cent.’

The Bank’s consensus forecast this month was that inflation is likely to hit three per cent this year before retreating in 2022.

Mr Haldane warned that this high level of inflation would ‘leave monetary policy needing to play catch-up to re-anchor inflation expectations’ through larger or faster interest rate rises than currently expected.

He said: ‘Even if this scenario is a risk rather than a central view, it is a risk that is rising fast and which is best managed ex-ante rather than responded to ex-post.

‘If this risk were to be realised, everyone would lose – central banks with missed mandates needing to execute an economic hand-brake turn, businesses and households facing a higher cost of borrowing and living, and governments facing rising debt-servicing costs.’

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