BoE Chief: Monetary Policy Is Stimulative, Fiscal Policy Is Restrictive

Tammy Harvey
October 18, 2017

'Inflation rising potentially above the 3% level in coming months is something that we have anticipated. Inflation rose to 3 percent in September from 2.9 percent in August.

Ramsden said: "Despite continued robust growth in employment, there is no sign of second-round effects onto wages from higher recent inflation".

New Bank of England Deputy Governor Dave Ramsden said on Tuesday he was in no hurry to vote for an interest rate hike because he saw little sign of inflation pressure building in Britain's labour market.

The annual consumer price inflation of United Kingdom continued to accelerate in September.

September's inflation figures were the last before the meeting, giving the numbers even more clout.

One of the main reasons why inflation has spiked over the past year is related to the pound's sharp fall since the country voted to leave the European Union in June 2016.

Economic theory suggests an increase in interest rates pushes inflation down because it increases the value of the income derived on sterling assets to overseas buyers, increasing demand for those assets, pushing the value of the currency upwards. Meanwhile, monthly input price inflation eased notably to 0.4 percent from 2.3 percent.

BOE deputy Governor Dave Ramsden was answering United Kingdom lawmaker's questions in a parliamentary committee, alongside new external BOE policy setting member, Silvana Tenreyro.

Though the central bank's upcoming economic projections, released on the day of the next rate-setting meeting, are set to show growth remaining weak and inflation edging lower, many economists think the bank will raise interest rates to give itself room to cut them in the future should the Brexit discussions fail to make headway and the economic outlook darkens further.

"Not raising rates now, having led the markets up the garden path on several occasions over the years would be as equally damaging to the banks credibility".

"Life is getting much more expensive with an increase in the cost of food, fuel and a last-minute price spike in flights all contributing to the rise in inflation", said Maike Currie, investment director for personal investing at Fidelity International.

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