Bank of England Warns Iran War May Fuel Longer-term Inflation Risks
Central Bank Perspectives on Inflation and Interest Rates
Bank of England's Stance on Supply Shocks
May 18 (Reuters) - Bank of England interest rate-setter Megan Greene said central banks should not assume that the Iran war's inflationary hit will be temporary and that policymakers cannot wait to see all the evidence of the impact before taking a stance on rates.
"This is our third negative supply shock in five years. We do have to worry about wage and price setting," Greene said at a Financial Times event on Monday.
Reevaluating Traditional Approaches
"Traditionally you look through negative supply shocks, but I think when you have successive ones, actually that's outdated folklore and we shouldn't be looking through them anymore."
Monetary Policy Committee Decisions
Greene voted with the majority of her colleagues on the BoE's Monetary Policy Committee to keep rates on hold in April but said at the time that an increase might be needed in upcoming meetings.
Potential for Future Rate Increases
In her comments on Monday, Greene said the second-round effects from the energy price surge - such as workers demanding more pay or companies raising their selling prices on a broad basis - would take a year to become apparent.
Other MPC Members' Views
Catherine Mann's Wait-and-See Approach
Separately, another MPC member Catherine Mann said she was awaiting data - including official April inflation figures due on Wednesday as well as more forward-looking indicators - to help her assess the upward risks to inflation.
Political Uncertainty and Inflation
However, uncertainty over the future of British Prime Minister Keir Starmer could exert pressure on inflation in the opposite direction, Mann told Reuters on the sidelines of a conference in Budapest organised by Hungary's central bank.
"Instability of a variety of types is deleterious to decision-making by firms and households, and so it does tend to be associated with ... 'let's wait and see', and so that's not good for growth," she said.
Market Expectations
Investors are pricing at least two BoE rate hikes before the end of the year but most economists polled by Reuters last week forecast no change in borrowing costs.
Reporting Credits
(Reporting by William Schomberg in London and Gergely Szakacs in Budapest; editing by William James and David Milliken)
