Bank may do ‘nothing’ to stop inflation, says rate setter

Deputy governor reveals split on Threadneedle Street as he suggests price rises are not here to stay

SPLITS at the Bank of England have deepened after Ben Broadbent, the deputy governor, insisted that policymakers could do “nothing” in response to rising inflation.

The former Goldman Sachs banker’s comments clash with those of several of his colleagues, who have warned about the dangers of surging prices. The consumer prices index is above the Bank’s 2pc target at 2.5pc, the highest since 2018.

Michael Saunders and Sir Dave Ramsden, fellow members of the Monetary Policy Committee, recently warned that the benchmark could rise to almost 4pc, a level not seen for a decade.

Mr Broadbent, however, argued that inflation may still prove temporary.

He said: “What is the appropriate policy response to the current inflation? Most of the overshoot relative to target in the latest CPI numbers – more than all of it, on some measures – reflects unusually strong inflation in goods prices. In all likelihood that will also be true of the larger overshoot we’re going to see towards the end of this year.

“If this was only a story about global goods prices – and depending how confident you were in its transitory nature – I think the answer could well be ‘nothing’.”

The economist said “quite a bit” of the current inflation surge came from higher oil prices, the effects of which were likely to fade away early next year. The Bank has previously overlooked the distorting impact of oil price swings in setting policy.

“While we know it’s going to go further over the next few months, I’m not convinced that the current inflation in retail goods prices should in and of itself mean higher inflation 18 to 24 months ahead, the horizon more relevant for monetary policy,” he added.

Mr Broadbent is instead focusing on the labour market and wages for signs of inflation amid a “mismatch” between job vacancies and unemployed workers.

The rate-setter’s remarks tipped financial markets in favour of a later interest rate rise from the Bank as traders bet that Threadneedle Street will decide against wrapping up its latest £150bn round of money printing early.

But they also came as the CBI business group’s latest snapshot warned of the growing cost pressures on Britain’s manufacturers.

While orders grew at their fastest pace since 1974 in the quarter to July, costs also rose at the fastest pace in 40 years, driven by chronic shortages of crucial components such as microchips, its latest industrial trends survey found.

Concerns over the availability of materials and skilled labour are also at their highest since the mid-1970s, prompting the business group to call again to free businesses from the “pingdemic” of self-isolating workers

‘I’m not convinced that the current inflation should mean higher inflation 18 to 24 months ahead’

with a “test and release” scheme

Rain Newton-smith, the CBI’S chief economist, said: “Businesses have already endured a prolonged period of inhibited demand, so it is vital that the Government now takes all possible steps to protect this resurgence in activity. In the short term, that should mean an immediate rethink on selfisolation rules.”

Despite manufacturing concerns, consumer confidence has now recovered to pre-pandemic levels amid surging appetite for major purchases, according to market research firm GFK.

Its benchmark improved for the sixth month in a row to minus 7, ahead of its March 2020 score.

Households have £200bn in savings to spend following three lockdowns, prompting a “dramatic jump” in plans to splash out on big ticket items, GFK director Joe Staton said.