BoE’s Saunders says discount rate could top 2% next year

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A general view shows the Bank of England and the Royal Exchange Building in London, Britain, December 17, 2020. REUTERS/Hannah McKay

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LONDON, July 18 (Reuters) – Bank of England policymaker Michael Saunders, who has backed a bigger interest rate hike than most of his colleagues, said the bank rate could reach 2% or more over the next year to limit inflation expectations after the recent price spike.

The BoE has hiked rates five times since December as it tries to prevent soaring inflation from sinking into the UK economy, and it is expected to raise them again at its August policy meeting – which will be Saunders’ last.

He warned price pressures could be harder to stop than the BoE’s central forecast due to Britain’s declining potential growth rate – meaning the economy can no longer grow as well quickly before generating excessive inflation.

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Financial market forecasts that the bank rate – currently at 1.25% – would reach or exceed 2% over the next year were not “implausible or improbable”, he added.

“But, rather than focusing on an accurate Bank Rate forecast over the next year, the key point is that the tightening cycle can (in my view) still have some way to go,” he said. he said in a speech to the Resolution Foundation. tank Monday.

Saunders warned that the cost of tightening too slowly was likely greater than the cost of raising rates too steeply.

“With excess demand and high inflation, ‘too little, too late’ would increase the likelihood that recent trends in underlying wage growth, longer-term inflation expectations and commodity pricing strategies businesses become more firmly entrenched,” he said.

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Reporting by Andy Bruce and William Schomberg; edited by David Milliken

Our standards: The Thomson Reuters Trust Principles.

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