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Wait and see before raising interest rates, says Bank of England rate-setter

According to a member of the Bank of England’s monetary policy committee, an early rise in interest rates would be “self-defeating” if inflationary pressures become temporary.

silvana tenrero, one of the central bank’s nine rate-setters, said policymakers should wait and see how much the price of oil, gas and semiconductors is rising before raising the cost of borrowing by 0.1%.

In a message, which will be seen as a swipe at the more aggressive members of the Monetary Policy Committee (MPC), who have indicated a willingness to raise the cost of borrowing, the former London School of London Economics The professor told BusinessLive Wells it was too early while the recovery remained uncertain.

Bank governor last week, Andrew Bailey, said he was concerned about inflation running above the central bank’s 2% target and the “very harmful” impact if consumers and businesses believed it was permanently elevated.

Tenrero’s fellow MPC member Michael Saunders Said it was fair That financial markets were focused on rate hikes ahead of Christmas, adding to speculation that Threadneedle Street could become the first major central bank to raise rates since the pandemic.

But on a virtual visit to Wales, Tenrero poured cold water on the idea of ​​an initial rate hike, arguing that the current level of inflation was being measured against lower prices after the first lockdown last year.

He added that sharp increases in global prices of energy and other commodities are also driving inflation, “but these effects are usually short-lived”.

Tenrero said: “Prices do rise, but they don’t move continuously, so you have a one-time price effect and in this sense inflation should be transient. So if they are not repeated they will be calculated from inflation after one year.” get out.

“Typically, for short-term effects on inflation, such as large increases in semiconductor or energy prices, trying to respond to their direct effects would be self-defeating.

“By the time interest rates were having a major impact on inflation, the effects of energy prices would have already been out of inflation calculations. If some of the effects prove to be more permanent, the above targeted inflation with the cost of weaker demand could It will be important to balance the risks of the period.”

Bank officials are concerned that a prolonged period of above-target inflation could trigger a phase of wage hikes that forces companies to further increase the prices of goods and services. He said the labor market, with falling unemployment levels but record vacancies, was being closely monitored by the MPC.

“It is interesting what is going on in the labor market and this is one of the biggest uncertainties we are facing now as a committee and we need to try and work out what is happening. Many people were on vacation. This is a significant and large labor supply that could potentially enter the market now,” she said.

“The question is whether they will become unemployed or whether they will withdraw from the labor force. There even if you think about people who have left the labor force and are now counted as inactive, they can be pulled back if there are jobs and unemployment is low enough and wage growth is back for them. Charming enough to go. So, they should not be written off as they can be brought back.”

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