LONDON, Sept 29 (Reuters) – The case for raising interest rates will remain weak until high energy prices translate into clearer signs of inflation spreading across the broader economy, Bank of England Monetary Policy Committee member Alan Taylor said on Tuesday.
Taylor – who set a relatively high bar for future tightening when he voted to keep rates on hold earlier this month – said that the recent surge in gas and oil prices “could push headline inflation considerably higher over the winter.”
But Taylor said this alone was not a reason to raise rates, and that evidence for second-round inflation effects was “scant,” with food inflation slower than expected and underlying pay growth remaining consistent with on-target inflation.
“The case for further rate increases is not compelling to me unless energy prices remain high for an extended period and also generate clearer signals of a transmission into broader inflation persistence,” he said in a lecture to Britain’s National Institute of Social and Economic Research.
Taylor was part of the 6-3 majority that voted to keep the bank rate on hold at 3.75% earlier this month and seemed further than some of his colleagues from voting for a rate rise.
He wrote in minutes of the rate decision that he would want to see “clear evidence that second-round effects are en route” before raising interest rates.
The BoE earlier this month forecast that inflation could exceed 4% early next year, up from 3.1% in August. British inflation has spent almost all of the past five years above its 2% target.
However, Taylor said he did not view the current outlook as similar to 2022, when Russia’s full-scale invasion of Ukraine caused oil prices to surge, inflaming a tight post-COVID labour market and sending inflation into double digits.
Rising public expectations for inflation did not necessarily offer a good guide to future inflation risks, he added.
“Inflation in many energy-intensive goods and services categories has not accelerated as one might have expected after such a visible energy shock,” he said.
(Reporting by David Milliken; Editing by Sam Tabahriti and Mark Porter)
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