BOE’s Haldane Sees Risk of Central Bank Complacency on Inflation

(Bloomberg) -- Bank of England Chief Economist Andy Haldane said he sees a risk of U.K. inflation accelerating more than expected, warning fellow central bankers against being too relaxed about taming the rise in consumer prices.

“For me, there is a tangible risk inflation proves more difficult to tame, requiring monetary policy makers to act more assertively than is currently priced into financial markets,” Haldane said in a speech released on Friday.

The comments strike a more hawkish tone than other BOE policy makers, who have warned against potential long-lasting scars on the economy and labor market by the coronavirus crisis. Haldane has been the most optimistic member of the BOE’s rate-setting committee about the prospect of economic recovery.

The pound pared losses immediately after his remarks. U.K. bonds fell to a session low, erasing earlier gains, with the yield on 10-year gilts rising four basis points to 0.82%.

Britain’s main inflation rate is below 1% now. The Bank of England’s forecast is for it to reach the 2% target by the first quarter of 2022 and to settle just above thereafter.

Earlier Friday, Governor Andrew Bailey told the Bournemouth Daily Echo that he expects a contraction in the first quarter, but the pace of Britain’s vaccination program gives hope that Covid-19 restrictions will lift soon.

After meetings with people along the south coast, Bailey said, “I came away there with a sense of it’s been really hugely hit but a sense of ‘Maybe we’re now beginning to see real light coming through at the end of the tunnel.’”

Haldane acknowledged that as vaccinations are rolled out and some degree of normality returns, inflation may return to a stable state of rest or that disinflationary forces could return. However, his judgment is that risks are skewed to the upside, rather than balanced.

Haldane sees a “sharper and more sustained” rise than expected, potentially overshooting its target for a longer period thanks to resurgent demand.

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