BOE warns of brief inflation spike
Print Edition
The Bank of England yesterday froze interest rates at a record-low but forecast a “temporary” inflation spike as the economy reopens, echoing warnings from the European Central Bank and the United States Federal Reserve.
The world’s major central banks are grappling with fears of an inflationary spike, fuelled by commodity price gains, and worries over the health of post-COVID economic recovery.
The BOE’s monetary policy committee said in a statement that it held borrowing costs at 0.1 percent and also maintained the level of its stimulus measures — but warned inflation would likely top 3 percent.
“The committee’s expectation is that the direct impact of rises in commodity prices on CPI inflation will be transitory,” read minutes from the gathering.
“More generally, the ... central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back.”
Consumer Prices Index inflation was set to shoot further above the central bank’s 2 percent official target. “Inflation is expected to pick up further above the target, owing primarily to developments in energy and other commodity prices, and is likely to exceed 3.0 percent for a temporary period,” the BOE warned.
Both the Federal Reserve and ECB kept their own ultra-low rates and economic support measures intact in recent weeks, insisting also that high inflation would be temporary.
UK inflation in May hit 2.1 percent — the highest level since before the pandemic — with clothing, fuel and oil prices rebounding.
The BOE remains keen not to snub out any nascent economic recovery by raising rates too soon, following a raft of encouraging data for the period.
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