The Bank of England will have to keep interest rates high for longer because inflation is unlikely to fade as quickly as it emerged, despite sharp falls in gas and producer prices, Deputy Governor Ben Broadbent said.
“It’s unlikely that these second-round effects will unwind as rapidly as they emerged,” Broadbent said at a gathering of central bankers in Jackson Hole, Wyoming. “As such, monetary policy may well have to remain in restrictive territory for some time yet.”
The BOE has raised rates 14 times in a row to 5.25%, the highest level in almost 16 years to tame inflation, which reached its highest level since the 1980s. Markets expect at least two more rate increases before the BOE can claim success.
Broadbent said he expects headline inflation to fall back relatively quickly now that the sharp spike in gas and goods input prices is reversing. The pace of the decline is not predictable, however, as both workers and companies are competing to recover lost income and profits caused by inflation, he said.
