Bank of England Chief Economist Andy Haldane warns ‘sleeping tiger’ of inflation is prowling and may prove ‘difficult to tame’ as UK economy begins to recover from Covid
- Bank of England’s Chief Economist Andy Haldane warned of inflationary ‘tiger’
- Raised issue of central bank complacency during COVID-19 pandemic recovery
- Comments saw government bond prices to fall to lowest level in almost a year and sterling to rise
The Bank of England’s Chief Economist has warned that an inflationary ‘tiger’ had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic.
In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Andy Haldane called inflation a ‘tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months’.
Such inflationary pressures could require Britain’s central bank to take action.
‘People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,’ Haldane said in a speech published online. ‘But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.’
In a speech published online, the Bank of England’s Chief Economist Andy Haldane called inflation a ‘tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months’
Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.
‘There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,’ Haldane said.
He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.
Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.
He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures (stock photo)
Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.
But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.
Haldane’s comments put him at the most hawkish end among the nine members of the MPC.
Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.
‘I see inflation expectations – whatever measure you look at – well anchored,’ Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.