Bank of England chief economist Hugh Pill has warned that persistently high inflation in the UK is not certain to subside anytime soon, even if demand weakens.
The view of the Monetary Policy Committee (MPC), which sets rates, has changed from high inflation driven by demand factors to price increases driven more by supply factors, Mr Pill said at the bank’s presentation.
“We may be less optimistic about the idea that the slowdown in demand and slowdown in activity that we are seeing will lead to inflation returning to target,” he said.
This week the MPC voted by six to three to keep the key interest rate at 5.25 percent for the second month in a row.
MPC member Jonathan Haskell said disruptions in the UK labor market, meaning it is not functioning properly, could keep interest rates high.
Mr. Haskel said the labor market’s ability to find workers for job openings appeared to have worsened.
“Given the distorted labor market, interest rates should remain high longer than they otherwise would,” he added.
The bank also warned that regulators must ensure banks operating in the UK have sufficient financial buffers as technological advances increase the risk of bank runs.
Determining the right level of bank reserves has been a challenge, according to Andrew Houser, the bank’s chief market officer.
Regulators around the world are grappling with the risk of bank runs as the digital age accelerates.
Earlier this year, some regional U.S. banks and Credit Suisse were hit by a massive influx of deposits, forcing some into bankruptcy and prompting regulators to intervene to contain the broader crisis.
The sudden collapse of US lender Silicon Valley Bank in March caught officials by surprise as customers rushed to empty their accounts using online banking services.
Mr Hauser said central banks also needed to consider whether to take a break from their post-boom balance sheets after years of bond buying. He said it would be unwise for them to reduce their balance sheets too much.
Source: I News
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