Monetary Policy Committee (MPC) member Jonathan Haskel stated on Thursday that the Bank of England needs to push back against the risk that high inflation proves unexpectedly sticky, and may need to raise interest rates further,
Jonathan Haskel – who in the past has sometimes voted for bigger interest rate rises than the majority on the MPC – was speaking a day after official figures showed inflation fell less than expected by markets when it dropped to 8.7% from 10.1%.
Investors have priced in a higher number of interest rate rises by the BoE, causing British government bond prices to tumble since the data release. Previously, market perception positioned the BoE as approaching the end of its cycle of raising rates.
Bank Rate
“Further increases in Bank Rate cannot be ruled out,” Haskel said in a speech at the Peterson Institute for International Economics in Washington. “I prefer to lean against the risks of inflation momentum. As difficult as our current circumstances are, embedded inflation would be worse.”
The BoE has raised rates 12 times since December 2021, taking interest rates to 4.5% earlier this month. Markets now expect rates to reach 5.5% by November. Haskel added that he still regarded Britain’s labour market as “very tight”, despite some indicators of loosening, and that the ability of the economy to grow without creating excess inflation appeared to have weakened.
“The data shows little evidence of UK inflation being disproportionately due to firms raising prices,” he said. Haskel said he hoped that an unexpected rise in core inflation in April – a measure closely watched by the BoE, which excludes volatile energy and food prices – would prove a blip.
Haskel stated that part of the increase in core goods prices observed in April was due to a renewed surge in the cost of second-hand cars. During the COVID-19 pandemic, these prices experienced a significant increase.
“I would hope that the car prices effect is somewhat of a blip,” he said. During the question and answer session following his speech, Haskel chose not to comment on the market expectations for BoE interest rates.
