Ex-BOE Chief Mervyn King Warns of Excessive Complacency on Inflation

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Mar 01 2021, 4:06 PMMar 01 2021, 5:15 PMMarch 01 2021, 4:06 PMMarch 01 2021, 5:15 PM

(Bloomberg) -- Central banks need to be prepared to act on inflation moving in either direction, according to former Bank of England Governor Mervyn King, who warned against excessive confidence that price growth will remain low.

The recent rise in bond yields indicates that markets are aware of the risks, King said in a Bloomberg Television interview Monday. Asked if the BOE should step up bond purchases in response, he said he sees no need for significant further stimulus at present.

While most economists see sluggish growth as the main challenge to policy makers after the pandemic, last week’s bond-market turmoil pushed the debate over inflation and interest rates to the fore. King’s comments chime with BOE’s Chief Economist Andy Haldane, who said he sees a “tangible risk” of inflation accelerating more than expected and requiring more assertive action.

“This is a time to keep all your options open, not to pre-commit to any path,” said King. “This was a warning sign that markets at least feel that the picture for future inflation is not entirely in one direction.”

He said that central banks need to avoiding building expectations that low interest rates will last for a long time. The BOE has repeatedly said it needs to see significant evidence of the economic recovery taking hold before starting to withdraw monetary support.

U.K. consumer prices unexpectedly accelerated to 0.7% in January, in what economists say is the first step toward a temporary increase that could bring the rate close to the BOE 2% target later this year.

Input cost inflation for U.K. factories accelerated to its highest rate in over four years in February amid supply chain disruption and raw material shortages, separate data from IHS Markit published Monday showed.