LONDON: The Bank of England cannot turn a blind eye to increases in inflation expectations which have picked up and may need to raise interest rates before all spare capacity in the economy is used up, a top policymaker said yesterday.
Martin Weale — the only BoE policymaker to vote against the terms of the Bank’s forward guidance plan when it was launched in August — said the new programme meant the BoE had to be more rigorous than in the past about gauging inflation expectations.
We cannot risk a situation where people say we are deliberately looking the other way if the data show a significant change in inflation expectations, Weale said in a speech at a London school.
British inflation has run above the BoE’s target of two percent for several years as policymakers focused primarily on getting the economy growing again after the financial crisis, slashing interest rates and buying government bonds.
In October, inflation fell sharply to 2.2 percent and the BoE this week revised down its forecasts for the consumer price index in the years ahead.
Weale said a range of surveys show inflation expectations have risen by an average of 0.15 percent and the BoE was working to come up with an indicator that can measure the economic significance of such shifts in price expectations.
I would regard a movement of 0.5 percent in such an indicator as extremely important. Indeed, I would be very concerned by a movement as large as 0.25 percent in expectations, he said.
As it tries to support Britain s economic recovery, the BoE will only consider raising interest rates from their record low of 0.5 percent once unemployment falls below seven percent.
reuters
