LONDON (Reuters) – Bank of England Deputy Governor Ben Broadbent said on Monday that inflation in Britain might “comfortably exceed” 5% in April and the country’s tight labour market was likely to be a more persistent source of inflation.
The BoE, trying to steer the economy through its recovery from a pandemic slump, last month said inflation would hit about 5% in the second quarter of next year before falling.
Broadbent suggested that forecast would probably have to be raised further above the central bank’s 2% target.
“The aggregate rate of inflation is likely to rise further over the next few months and the chances are that it will comfortably exceed 5% when the Ofgem (regulator) cap on retail energy prices is next adjusted, in April,” Broadbent said.
Speaking to Leeds University Business School, he also said the recent jump in inflation for goods – driven partly by a global supply chain squeeze – was likely to fade and in some cases reverse, before a BoE rate rise would have an impact.
“I still think it’s more likely than not – looking a couple of years ahead as we should – that these pressures on traded goods prices are more likely to subside than intensify,” he said.
Broadbent was one of the seven members of the BoE’s nine-strong Monetary Policy Committee who voted to keep interest rates on hold last month which shocked financial markets that had been betting on a hike.
Investors are pricing less than a 50% chance on the BoE raising rates from 0.1% to 0.25% on Dec. 16, after its latest meeting, because of the emergence of the Omicron variant of the coronavirus.
Broadbent used his speech to stress how moves such as a changes to interest rates by a central bank could take two years to have an effect on the economy.
“What we can do – and what is the best possible approach – is to think at every meeting about the level of interest rates that will maximise our chances, a couple of years from now, of hitting the inflation target exactly,” he said.
“That is what we will continue to do.”
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