A Bank of England policymaker has warned that the British economy is not out of the woods yet and the damage caused by the ongoing pandemic has only been partially repaired. Jan Vlieghe said Threadneedle Street should be cautious about raising interest rates to counter higher levels of inflation emerging after lockdown.
He said the UK was still grappling with the Delta variant, and that it remained unclear what impact the removal of government support would have on the economy. He said, “We are not out of the woods yet in terms of the virus and the impact on the economy. Yes, the economy has been growing in rapidly, but on the most recent data it remains an average recession away from full employment.”
Vlieghe also said the BoE should ignore a temporary rise in inflation and that taking early action to bring down the cost of living would be a mistake. Vlieghe said, “I think it will remain appropriate to keep the current monetary stimulus in place for several quarters at least, and probably longer. And when tightening does become appropriate, I suspect not much of it will be needed, given the low level of the neutral rate.”
Vlieghe’s intervention reduces the chances of the Bank acting on 5 August, with only two members of the eight-strong MPC so far publicly supporting tighter policy in response to a rise in the annual inflation rate to 2.5 per cent.