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New interest rate.

 

BoE
The Bank of Eng­land’s chief eco­nom­ist hin­ted at a fur­ther interest rate rise in May when he said the cent­ral bank needed to «see the job through» in its battle to erad­ic­ate high infla­tion.

Huw Pill, however, stressed that the Mon­et­ary Policy Com­mit­tee faced a tight decision on whether to raise interest rates from 4.25 per cent, espe­cially at a time of fin­an­cial mar­ket fra­gil­ity.

«On bal­ance, the onus remains on ensur­ing enough mon­et­ary tight­en­ing is delivered to see the job through and sus­tain­ably return infla­tion to tar­get,» he said in a speech to the Gradu­ate Insti­tute in Geneva.

«Non­ethe­less, those of us on the MPC need to remain vigil­ant to signs of tight­en­ing fin­an­cial con­di­tions and be pre­pared to respond to the macro implic­a­tions of any dis­lo­ca­tion to credit mar­kets to the extent that they influ­ence the out­look for infla­tion».

Pill stressed that he was examin­ing most closely the danger that high infla­tion becomes per­sist­ent in the UK, with com­pan­ies rais­ing prices and work­ers demand­ing higher pay increases to pre­vent a loss of income.

There were no signs in UK data of either excess prof­it­eer­ing driv­ing infla­tion or excess wage rises, he poin­ted out.

He con­sidered the most significant risks were a buoy­ant labour mar­ket com­bined with greater cor­por­ate pri­cing power gen­er­at­ing a sim­ul­tan­eous infla­tion­ary «push» from higher wages along with a «shove» from com­pan­ies rais­ing prices to keep profit mar­gins.

To com­bat this pro­cess, higher interest rates were both a «power­ful» tool to curb spend­ing but also a «blunt» one, he added.

Pill rejec­ted sug­ges­tions that the improved out­look for the eco­nomy since the start of the year increased infla­tion­ary pres­sures. Lower whole­sale nat­ural gas prices would both improve the out­look for eco­nomic per­form­ance and lower infla­tion risks, he said.

In a sep­ar­ate speech, Sil­vana Ten­reyro, an inde­pend­ent MPC mem­ber, dis­agreed with Pill’s view that rapid price increases were now a per­sist­ent fea­ture of the UK eco­nomy.

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