Andrew Haldane warned in his last speech as the Bank of England’s chief economist that policymakers risked losing control of inflation.
At an event hosted by the Institute for Government, Haldane said that UK consumer price inflation was headed towards 4% by the end of 2021 and that everyone would lose should inflation expectations became unhinged as a result.
Bank would be forced to play catch-up, hiking interest rates “materially” higher “and/or faster” in order to reanchor people’s expectations.
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“If this risk were to be realized, everyone would lose — central banks with missed mandates needing to execute an economic hand-brake turn, businesses and households facing a higher cost of borrowing and living, and governments facing rising debt-servicing costs,” he said in prepared remarks for the speech.
For now, there was no evidence that expectations had become unhinged, he added, but said that the recovery was changing the economy rapidly which could mean that rate-setters would have to shift their stance quickly.
“We’re moving from a regime of rather localized shortages and price pressure to a world of slightly more generalized shortages and generalized price pressures – from pockets of excess demand to aggregate excess demand,” he added.
Quick action was needed because “getting the cat back in the bag is jolly hard work.”
By Alexander Bueso
Source: ShareCast
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