Bank of England Deputy Governor Ben Broadbent said the coronavirus pandemic has less-than-estimated pressure on inflation.
“The consequences for cost pressures over the medium term – and therefore for monetary policy – are probably limited,” the banker said.
“But this divergence in demand may help to explain why, at least on impact, the pandemic has depressed inflation by a bit less than we and others anticipated when it began,” added Broadbent.
The banker concluded that the monetary policy committee would need firm evidence of a significant narrowing in spare capacity, and of a sustainable return of inflation to the 2 percent target, before considering whether to withdraw any of this stimulus.
Further, he said GDP is likely to have fallen in the fourth quarter of 2020 and to do so again in the first quarter of 2021. This will no doubt prompt headlines about a “double-dip recession”.
The rate of unemployment is the best single measure of economic slack, he noted. The unemployment is expected to rise once the furlough schemes are wound down.
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