BoE points to ‘un­ex­pected strength of in­fla­tion’

The Pak Banker - - Company& -

LONDON: Bank of Eng­land deputy gover­nor Char­lie Bean de­clared that UK in­fla­tion had been run­ning above the 2% tar­get for "an un­com­fort­ably long time".

Mr Bean ap­peared to strike a slightly more hawk­ish tone than of late dur­ing a speech at a sem­i­nar in London. He high­lighted the risk that the pe­riod of "el­e­vated" an­nual UK con­sumer prices in­dex in­fla­tion "causes medium-term in­fla­tion ex­pec­ta­tions to drift up, lead­ing to higher rates of in­crease of both wages and prices". Mr Bean added: "Given the un­ex­pected strength of in­fla­tion in re­cent months, this risk has prob­a­bly in­creased of late.

"So we shall be watch­ing these in­di­ca­tors (of house­hold and fi­nan­cial mar­ket par­tic­i­pants' in­fla­tion ex­pec­ta­tions), and their im­pact on wages and prices, like prover­bial hawks." He did not sig­nal any de­sire for im­me­di­ate tight­en­ing of UK mon­e­tary pol­icy. He high­lighted fac­tors which could bear down on growth and expressed his be­lief that an­nual UK CPI in­fla­tion, which stood at 3.2% in Oc­to­ber, should fall back to near the Bank of Eng­land Mon­e­tary Pol­icy Com­mit­tee's 2% tar­get "be­yond the end of next year". His em­pha­sis on the dan­ger of in­fla­tion seemed stronger than of late. UK base rates have been at a record low of 0.5% since March last year.

The Bank's nine-strong MPC has also im­ple­mented a £200bn boost to UK money sup­ply to stim­u­late eco­nomic ac­tiv­ity. Mr Bean, al­though flag­ging up high in­fla­tion, also high­lighted the weak­en­ing of UK con­sumer con­fi­dence through this year. He cited house­hold fears over pub­lic spend­ing cuts and tax hikes as a pos­si­ble ex­pla­na­tion. He warned there could be fur­ther ad­just­ment of house­hold be­hav­iour in re­sponse to the fis­cal con­sol­i­da­tion pro­gramme which has been out­lined by the Con­ser­va­tive-Lib­eral Demo­crat Coali­tion Govern­ment.

In his June Bud­get, Chan­cel­lor Ge­orge Os­borne an­nounced an ad­di­tional £40bn of an­nual pub­lic spend­ing cuts and tax hikes by 2014/15.

This was on top of the £73bn of an­nual fis­cal con­sol­i­da­tion pro­posed on this timescale by the for­mer Labour Govern­ment. Mr Bean said yes­ter­day: "The prospects for house­hold spend­ing through next year and be­yond de­pend cru­cially on house­holds' ex­pec­ta­tions of their fu­ture in­comes, as well as their bal­ance sheet po­si­tions. "Con­sumer con­fi­dence mea­sures have gen­er­ally weak­ened through this year, pos­si­bly re­flect­ing con­cerns about the prospec­tive fis­cal con­sol­i­da­tion. -PB News

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