Photo by Bank of England/Flickr
This morning, Ben Broadbent, the deputy director of the Bank of England, said that an abrupter path of interest rate hike over the coming year would not come as a “great shock” to the UK economy.
Broadbent doubled down on the hawkish statement that was given by the monetary policy committee (MPC) of the Bank, of which he is a member of, leading the way for an increase that is sooner than what the markets had earlier priced in.
In an interview with the BBC, Broadbent stated: “It’s likely the path of interest rates required to get inflation back to target over the medium term is itself slightly higher.”
Last Thursday, the MPC implied that the expectations of the market of an increase in November 2018 might not be steep enough, as its latest forecasts revealed that even three rate changes over the coming three years – as the committee assumed only two last November – would not be sufficient to bring inflation under control.
Broadbent played down concerns that an increase in interest rates would bring some damage to the economy of the United Kingdom.
“Doubling interest rates from one half [of a per cent] is not a terribly big rise,” he said. “Nor do I think if there were to be a couple of 25 basis points rises in a year that that would somehow be a great shock.”
The recent market turmoil of last week, which continued on Wall Street last Thursday night, has been partly urged by concerns that central banks will increase interest rates faster than what was previously expected as a response to higher inflation.However, Broadbent said that he was not concerned by the drops in the stock markets.
He stated: “While markets had priced in the very strong growth, in particular, growth of profits they had probably not paid sufficient attention to the risk that all that growth might produce a little bit of inflation – which I have to say is welcome. It has been terribly low in the US and in Europe.”