Interest rate hike unlikely before Christmas, says Bank politician | bank of england

An interest rate hike before Christmas is unlikely despite rising energy prices and supply shortages expected to push inflation towards 5%, according to Bank of England policymaker Silvana Tenreyro.

Opposing his colleagues Michael Saunders and Governor Andrew Bailey, who have warned in recent weeks that inflationary pressures could warrant a rapid central bank response, Tenreyro said it was not clear whether a rise in the cost borrowing before Christmas would control the escalating prices of imported goods.

With the economy already slowing and consumer confidence declining, she predicted that a surge in prices over the next few months would likely be short-lived, meaning an interest rate hike would take effect afterwards. that prices have started to fall.

Inflation fell to 3.1% last month from 3.2% in August, but the Bank’s chief economist Huw Pill said the fall would be quickly reversed and return by the end of the year. year around 5%.

A surge in oil and gas prices and computer chip shortages have been blamed for pushing inflation to its highest growth rate in a decade. The costs of importing food have also increased and some industries have blamed paying higher wages to attract staff as another cost forcing them to raise prices.

Tenreyro said there was evidence that the wide geographic distribution of supply lines from the UK to the rest of the world made the economy more resilient during the pandemic, contrary to some claims that it made businesses more vulnerable.

While many automakers planned to wait until next year before the supply of computer chips returned to pre-pandemic levels, delaying production, most other cargo would soon be moving normally, including equipment. personal protection intended for health services.

“A series of temporary factors have pushed the Consumer Price Index (CPI) above target, and will continue to do so in the coming months.

“Some of them, such as the direct impact of rising energy prices, are short-lived and there is little that monetary policy can do to offset them,” Tenreyro said, adding: ” Much of the effect of the policy would only occur after their impact had faded.

It was more important, she said, to monitor energy prices to see if they are affecting disposable income and plant costs, a development that would slow economic growth next year.

Investors have bet that the Bank will start raising its base interest rate by 0.1% – which is the amount it charges other banks to borrow money – at its next meeting in November. and again in December.

Tenreyro said unless there is a major change in CPI inflation or the wage outlook, the bank should stick to its plan to hike rates by 0.5% by the end. next year.

She said wages were modest and could decline in the coming months as around 1 million workers on leave and 1 million people who have left the labor market begin to return to jobs or the unemployment register.

“A large number of workers are due to be reintegrated into the labor market in the coming months, some of whom will find themselves unemployed.

“The literature on unemployment benefits, the effects of which are comparable to the leave scheme, would suggest that the leave stimulated underlying wage growth. Its withdrawal could reverse this process, ”she added.