BoE rate-setter: Economy to take ‘extremely large’ hit and inflation to dip
The UK economy is likely to take an “extremely large” hit from coronavirus and inflation is probably going to to dip below one per cent, one of the institution’s nine rate-setters has said.
The Bank has so far slashed interest rates to a record low, started buying up companies’ short-term debt and boosted its bond-buying programme.
In an online “webinar” given today, monetary policy committee (MPC) member Silvana Tenreyro said the BoE has done its best to minimise “business failures and job losses”.
“The aim of our policy actions has been to ensure that the economic effects prove temporary,” she said.
Yet Tenreyro said severe economic fallout is unavoidable and is likely to see inflation fall below one per cent. “The data we have so far suggest that the drop in aggregate spending already taking place will be extremely large,” she said.
“This is partly by design: to safeguard public health and long-run prosperity, governments around the world have temporarily closed some sectors of the economy and limited consumption and production.”
She said that support measures from the government and Bank of England, while vital, would not be enough to dodge a rise in unemployment which would push down on wages and inflation.
On top of this is the fall in oil prices, she said, which means it is “likely that inflation will fall below one per cent in the next couple of months”.
Yet Tenreyro warned that the effect of coronavirus on the economy made it difficult to interpret inflation figures. For example some changes to spending patterns may be temporary but some, such as greater online shopping, may be permanent.
Tenreyro said the MPC is committed to price stability, despite its unprecedented interventions into the economy. “It also remains ready to take whatever further actions are necessary,” she said.