LONDON (Reuters) – Bank of England rate-takers Michael Saunders and Silvana Tenreyro on Friday set risks of a steady rise in inflation as the British economy recovered from its pandemic crash, and Tenreyro said more stimulus may still be needed .
After weeks of rising government bond yields driven by concerns about inflation on both sides of the Atlantic, Saunders said the economy may have more room than the BoE expected last month without generating too much price pressure.
Tenreyro recognized a view that was improving, but identified situations that may need more financial incentives later this year.
Their comments reflected how most members of the Monetary Policy Committee believe that a steady and difficult rise in inflation is not at the top of the list of risks as Britain recovers from the economic downturn. largest in three centuries.
“Despite reducing downside risks, there are still a number of situations in which I would expect to call for a tighter policy later this year,” Tenreyro said in a speech to the Federal Reserve Bank of San. Francisco.
She noted post-pandemic changes in work practices that may lead to lower demand in some industries and the expectation that many workers with refrigeration are currently unemployed.
The slow spread of COVID-19 vaccines among many British trading partners and the potential for recurrence of the pandemic caused by new strains of the coronavirus were other risks.
As inflation plummeted, Tenreyro said it was important to differentiate between a steady rise and a temporary rise.
Saunders said the recovery from last year’s 10% decline could be faster than the BoE’s mid-term forecast, made in early February. The central bank said it expected 5% growth in 2021 as the country continues to run on coronavirus vaccines.
But that didn’t automatically mean that inflationary pressures would also rise, Saunders said.
The British economy could have more resources that can be used as the economy grows before cost pressures rise “much more” than the BoE assumed, he said, noting that rising jobs and underused companies.
“My catch, given a slightly more optimistic assessment of the outlook for a potential outcome, is that it will take longer to close the yield gap than expected, Saunders said in a speech.
The views of Saunders and Tenreyro differ from those of BoE Chief Economist Andy Haldane, who has warned of a “tiger” inflation driven by the release of home and physical savings raised at the time of the pandemic and the high government.
Reporting by William Schomberg and Andy Bruce; Edited by Catherine Evans and Jonathan Oatis