Outgoing Bank of England rate-setter Silvana Tenreyro said the recent spike in market rates would be enough to bring UK inflation under control despite signs that price increases were becoming entrenched.
(Bloomberg) — Outgoing Bank of England rate-setter Silvana Tenreyro said the recent spike in market rates would be enough to bring UK inflation under control despite signs that price increases were becoming entrenched.
Tenreyro explained at the Resolution Foundation in London why she voted to hold rates at 4.5% last week in her final policy meeting, when the majority preferred a half-point increase.
Market rates have risen sharply “at longer horizons,” she said in reference to the spike in borrowing costs over the past month that has driven up mortgage rates. “The disinflationary impact of this would be more than sufficient to offset the recent data news, even in the unlikely event that all of that news, proved to be persistent.”
Tenreyro has been the most consistently dovish member of the monetary policy committee, arguing that the impact of 13 successive rate hikes has yet to be felt and will be more than sufficient to tame rampant UK inflation, which is still more than four times above the 2% target. She will be replaced next week by Megan Greene, chief economist at the Kroll Institute.
Tenreyo warned that “the more we raise rates now the earlier and faster I think we will need to cut rates.”
“Overall, I judged that the tightening already in the pipeline would be sufficient to bring inflation back to, and most likely below, the target,” she said about her decision.
“There had been rapid successive bank-rate increases over a period of several months, which would take some time to exert additional downward pressure on activity and inflation.”
In her farewell remarks, she also urged the BOE to adopt a system like the “dot plots” that individual US Federal Reserve governors use to show their forecast of the likely path for interest rates.
“I have come to think that the advantages of MPC members publishing their own views — or paths — on future policy outweigh the potential costs,” she said.
The BOE’s forecast and economic model is under scrutiny after repeated failures to anticipate inflation. Tenreyro said policymakers rather than the model should be blamed for any errors as “the MPC is free to make any forecast it wishes, independently of any of the assumptions or results in any of the models it consults.”
“Any criticism of the forecasts should therefore be apportioned to us, the MPC members who decide on them.”
–With assistance from Elina Ganatra.
(Updates with quote on future rate cuts in fifth paragraph.)
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