BoE says inflation could climb above 4% in coming months
The Bank of England has suggested it is worried about the prospect of additional inflation.
The UK central bank today predicted that prices will climb above 4% over the coming months, but added that increased rates are not yet a priority as they would come down in 2022.
The Monetary Policy Committee voted unanimously to keep its rate at 0.1% this month, adding that it was content with the economy’s recovery from the pandemic to the point it will now weigh up the possibility of ending emergency interest levels.
However, the committee suggested that rates will not be raised immediately.
On the other hand, it said the recent information on possible inflation had “strengthened [the] case” for “modest tightening of monetary policy”.
Hinesh Patel, portfolio manager at Quilter Investors, commented: “The Bank of England, in its policy decision today, clearly expects the inflation rate to be higher than previously feared. While they reiterate it will be transitory, it will no doubt be of major concern.”
“Ultimately what is flowing through the system right now is “bad inflation”, that is price rises are hitting the most vulnerable households, alongside the impacts of furlough on unemployment uncertainty. This uncertainty is likely to continue with the end of the furlough scheme coinciding with the structural shift in skillsets in the employment market.”
Patel has little faith that any of the issues can be solved by monetary policy and as such the BoE should be well within its rights to start tightening its stimulus policy. “Unfortunately if it does not it risks doing even more damage on the social divide through ever increasing wealth inequality,” he said.
“With the ECB and Federal Reserve both announcing that they intend to begin the tapering and unwind their financial support, there is a risk that not acting in the same timeline will force UK sterling down even further – exacerbating the inflationary shock further with even higher import prices.”
