BOE Warns Against Tightening Too Soon as Inflation Surges
Comment of the Day

June 24 2021

Commentary by Eoin Treacy

BOE Warns Against Tightening Too Soon as Inflation Surges

This article from Bloomberg may be of interest to subscribers. Here is a section:

“Today’s decision reinforces our belief that the committee will continue providing monetary support through the economic restart,” said Vivek Paul, U.K. chief investment strategist at BlackRock Investment Institute.

Officials led by Governor Andrew Bailey voted unanimously to keep the benchmark lending rate at 0.1% and by 8-1 to maintain the pace of its bond purchases, targeting a cumulative 895 billion pounds ($1.2 trillion) by the end of this year. Chief Economist Andy Haldane, who steps down from the nine-member Monetary Policy Committee this month, pressed for a reduction in the stimulus.

The pound dipped against the dollar and euro after the decision, and U.K. stocks ticked higher. The yield on U.K. government 10-year bonds fell after the decision. Money-market bets on the BOE raising interest rates were also pushed back by two months to August 2022.

“Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory,” the BOE said in a statement on Thursday.

Eoin Treacy's view

That transitory word is becoming progressively more common in the statements of central banks globally. The question in my mind is do central banks create inflation. That is another way of thinking about the monetarist view of the topic.

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