The Bank of England’s new chief economist, Huw Pill, said that inflation in Britain could surpass a 5%. The Financial Times reported this news. Pill told the newspaper that the decision facing the Monetary Policy Committee was finely balanced. He added that he would not be shocked. They should see an inflation print close to or above 5% in the upcoming months. And that’s a very uncomfortable place for a central bank with an inflation target of 2%.
Financial markets have priced in a 15-basis-point rate hike by the BoE. This would make it the first of the world’s biggest central banks to raise borrowing costs since the pandemic struck in early 2020. The BoE has said that the inflation is likely to go above 4%. Energy prices have risen further after the forecasts. Britain’s economy is close to regaining its pre-pandemic size.
Pill told that the big picture is, there are reasons that they don’t need the emergency settings of policy that they saw after the intensification of the pandemic. But the newspaper quoted him as suggesting that rates would not need to move much higher than their pre-pandemic level of 0.75%. he added that they do not see, given the transitory nature of what they are seeing in inflation in their base case, a need to go to a restrictive stance. BoE Governor Andrew Bailey also said that the rise in inflation was still likely to prove transitory. The British central bank would have to act to contain the risks. Pill told the FT that, he did not see wage rises at the moment that were threatening to cause inflationary concerns.