–Deflation Threat Has Not Gone Away
LONDON (MNI) – The Bank of England’s Monetary Policy Committee must
be sensitive to the risks of tightening policy prematurely and the
the threat of deflation has not gone away, BOE Executive Director
Markets Paul Fisher said in remarks released Tuesday.
Fisher highlighted the uncertainty at present surrounding estimates
of the UK’s output gap, but said the economics suggested inflation would
fall from its highs. He warned, however, that if inflation pressures do
prove resilient in the medium term, it was clear what the MPC would have
to do.
Fisher’s MPC colleague Andrew Sentance has called for gradual
monetary policy tightening to start now, voting for a 25 basis point
rate hike in June, but Fisher’s remarks show a more cautious approach.
“We need to be sensitive to the risk of tightening policy
prematurely, stifling the nascent recovery. In that case, some of the
flexible response to the recession could be swept away, delivering
higher unemployment, more company failures and the risk of
inflation significantly undershooting the target,” Fisher said.
He added that “The risk of deflation … may have faded, but it
hasn’t gone away and would require greater efforts to deal with, if it
materialised now.”
Against this, if it seems “likely that inflationary pressure is
sustained at a higher level into the medium term, then it is clear what
our mandate would require us to do,” Fisher added.
–London bureau: +4420 7862 7491; email: ukeditorial@marketnews.com
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