Bank of England deputy governor Broadbent said monetary authorities were facing their toughest challenge in 30 years
According to the Market Matrix (Market Matrix (Home) | Futures and Derivatives Trading Research Centre | MarketMatrix.net), Ben Broadbent, deputy governor of the Bank of England (BoE), warned that monetary authorities face their toughest challenges since the United Kingdom (GBR) withdrew from the European Exchange Rate Mechanism (ERM) 30 years ago.
Soaring prices are creating a cost-of-living crisis for households, and the Bank of England is raising interest rates to make things worse, but with inflation expected to peak above 7 percent, more than three times its target, it must act.
In written submissions to the bipartisan House of Commons Finance Committee, Broadbent said: "This is the most challenging period for monetary policy since the beginning of the inflation targeting in 1992. ”
The Bank of England has raised interest rates from 0.1% to 0.5% since December, and the market expects to raise rates further to around 2% by the end of the year, which will be the fastest pace of policy tightening since the central bank became independent in 1997.
Speaking to MPs, Bank of England Andrew Bailey compared the current energy and oil shocks to "taxing the UK from the outside", saying it would increase the average energy bill for UK households by at least £700 from April.
However, he warned that the standard of living of Britons could tighten even more due to escalating Russia-Ukraine Tensions. "We have been hit by external shocks," he said. Unfortunately, due to worse things happening in Ukraine (UKR), we are at risk of rising energy prices. ”
Jonathan Haskell, an outside member of the interest rate-setting committee, responded to the warning in a statement.
"Upside risks to inflation projections could come from geopolitical events," he wrote. At the time of writing, there appears to be a significant risk of further rise in global gas prices, which will only exacerbate what we have seen so far as inflation continues to rise. ”
Broadbent said policymakers often consider the shocks of high energy and oil prices, but need to respond because "rising labor costs have begun to accelerate." So they are taking action to slow the economy.
"The traditional response to a sharp rise in oil prices is not to react ... Because its impact on inflation doesn't last long enough, it's not worth doing anything about. If oil prices rise sharply and we tighten monetary policy, the direct impact on inflation will disappear after a year. So what you're doing is slowing down the economy. ”
Figure 1: What is possible? Traders believe the Bank of England will see a sharp tightening cycle, possibly raising rates by 50 basis points _By Bloomberg
Figure 2: For much of this year, wage growth in the UK will outpace inflation _By Bloomberg
Figure 3: More than 10% of categories in the UK CPI basket rose more than double digits _By Bloomberg
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