(Alliance News) – The Bank of England may need to keep interest rates in “restrictive territory for some time yet”, its deputy governor said, amid the potential of second-round inflation effects.
In a speech on Saturday, Ben Broadbent discussed inflation pressure stemming from imported goods, including Russian energy.
“One possible conclusion from experiences is that it’s wrong to be so reliant on imported goods – particularly from a single source – to begin with. When it comes to Europe’s pre-war reliance on Russian energy this makes sense. Certainly the fragility of Russia’s energy supply, if it wasn’t apparent before the war, is clear enough today,” Broadbent said.
The experience of the UK provides a “stark illustration” about the toll that a contraction in the supply of crucial traded goods can have, Broadbent added.
Broadbent cautioned: “Together with a tight labour market, the resulting squeeze on income is likely to have contributed to the sharp rise in domestic inflation and the consequent tightening of monetary policy. Over time, the more recent decline in import prices will alleviate some of this pressure. But it’s unlikely that these ‘second-round’ effects will unwind as rapidly as they emerged. As such, monetary policy may well have to remain in restrictive territory for some time yet.”
Threadneedle Street has dug deep with 515 basis points worth of hikes in the current cycle. Earlier in August, it lifted the benchmark bank rate to 5.25% from 5.00%. The next BoE decision is on September 21.
By Eric Cunha, Alliance News news editor
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