Bank of England Chief Economist Huw Pill warned that a surge in food or natural gas prices could force policy makers to react if it shifted the outlook for UK inflation substantially.
Pill said Friday that the central bank is monitoring commodity prices “very closely” amid concerns about the risk of a winter jump in energy costs and a disruption to food supply caused by the collapse of a deal with Russia on shipping grain in the Black Sea.
“It’s not that monetary policy is on some preset course at this point,” Pill said Friday in a web briefing for the BOE’s regional agents. “If we were to see further increases in gas prices or other disruptions, food prices owing to disruptions in the Black Sea or whatever, those types of dynamics would presumably affect things that we’re looking at.”
The remarks are a reminder that the central bank sees a number of possible paths for interest rates to bring down inflation. An attempt to keep rates steady close to the current 5.25% could be blown off course if energy and food bills rocket again and lead to a a broader surge in prices.
If the central bank has not factored in another surge in energy and grocery costs, policy “would respond in order to address that,” Pill said, emphasizing the central bank’s data dependent approach.
Pill also said:
- The Monetary Policy Committee’s analysis is focused on assessing whether inflation will persist, and that those risks have risen since May.
- “It’s possible we do too much” on raising interest rates, but the MPC is trying to strike a balance in fighting inflation while doing as little damage to the economy as possible.
- The economy can’t grow too quickly without sparking inflation.
