London August 27 2023: The Bank of England (BoE) will have to keep interest rates high for longer because inflation will not fade as quickly as it blew up despite recent drops in gas and producer prices, BoE’s Deputy Governor Ben Broadbent said.
The key question for policymakers is how quickly declining import costs will feed through to domestic price-setting behavior, he said, quoted by Bloomberg today.
His conclusion was that it will not be fast, potentially taking longer than the 18 months to two years it took to get embedded.
“It’s unlikely that these second-round effects will unwind as rapidly as they emerged,” Broadbent said at the Federal Reserve’s annual 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. The rate of consumer price growth has dropped from an 11.1% peak to 6.8%, but is still more than three times the 2% target. Markets expect at least two more quarter-point rate increases before the BOE declares success.
