BOE’s Haskel Says It Would Be a Mistake to Tighten Policy Now

Bank of England policy maker Jonathan Haskel signaled he remains opposed to paring back stimulus for the economy now, saying the U.K. faces headwinds from a tighter fiscal stance and from a surge in the delta variant of the coronavirus.

The remarks indicate divisions on the central bank’s Monetary Policy Committee likely to play out next month as the eight-member panel debates how to respond to an unexpected jump in inflation above its 2% target. Two members of the MPC last week said the BOE should consider reining in its bond-buying program.

Haskel, who for months has been on the dovish end of the debate, acknowledged that the pace of investment in the economy and productivity gains due to home working may reducing scarring from the pandemic. However, he said that the U.K. is still at risk from a rapid spread of the delta variant of Covid-19 and that much of the growth the U.K. has enjoyed was spurred by government support measures are are now in retreat.

“In the immediate term, the risk of a preemptive monetary tightening curtailing the recovery continues to outweigh the risk of a temporary period of above-target inflation,” Haskel said in the text of a speech released on Monday. “For the foreseeable future, in my view, tight policy isn’t the right policy.”

Haskel also noted that:

  • Oil prices are 40% higher than pre-pandemic level and this will boost CPI above 3%
  • It’s right for the MPC to use “risk-management considerations” and “lean against a preemptive tightening of monetary policy until we can be more sure the economy is recovering”
  • “The majority of the recovery to date has occurred under the protective blanket of the government employment schemes, loan schemes, tax relief and insolvency/eviction protections. Many of these have only just recently expired and more will expire by the autumn”

The remarks are a sharp contrast against those of Deputy Governor Dave Ramsden and Michael Saunders, a fellow MPC member, who said last week that inflation is likely to reach 4% and that it’s right for the BOE to consider reducing its stimulus program soon.

Policy makers meet next month to revise inflation and growth forecasts. They’re on track to buy 150 billion pounds ($206 billion) of bond purchases this year, part of an effort to keep a lid on interest rates in financial markets. One option is for the BOE to halt that program early. It also could raise its benchmark lending rate.

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