BoE rate hikes will be ‘self-defeating’ after a one-price shock

লের Reuters file photo: Flowers in front of the Bank of England in London, UK, August 1, 2018. Reuter / Peter Nichols / File photo

LONDON (Reuters) – Interest rates should not be raised in the face of rising inflation caused by the high cost of fuel and semiconductors in the Bank of England if they think the effects will be short-lived, said BoE policymaker Silvana Tenero.

Investors are currently expecting the BoE to raise interest rates from their current 0.1% before the end of the year, but last month’s BoE policy showed that officials are divided over whether some prerequisites for rate hikes have been met.

Teniro has previously called for caution in tightening monetary policy as he sees a significant slowdown in the UK economy even after the epidemic, and recent data seems to have strengthened his view.

“Activity is weaker than expected in our last forecast and we have a normal-sized recession below the pre-coded level of GDP,” he said. A visit to the Western Mail magazine to talk to traders in Wales is a time-interest-counter-one-21853303.

August GDP data released on Wednesday shows that the UK economy is set to grow less than the BoE forecast in the third quarter, although previous data shows that output was higher than previously thought at its pre-Covid levels.

Rising prices and supply-chain constraints mean that the BoE expects inflation to exceed 4% by the end of the year and stay close to that level in the first half of 2022, strengthening market bets that the BoE will raise rates soon.

Teniro pushed back against this idea.

“Generally, for short-term effects on inflation, such as semiconductor or large increases in energy prices, it would be self-defeating to try to respond to their direct impact,” he said.

“There is uncertainty about the exact stability and size of these large pick-ups at the price,” he added. “If some of the effects prove to be more lasting, it is important to balance risks with weak demand from the time of inflation above the target,” he said.

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