Bank of England official teases future tightening of monetary policy
A leading Bank of England official has said she sees the benefit of building domestic cost pressures, in a sign she may be willing to vote to tighten monetary policy at future meetings of the Monetary Policy Council (MPC).
The comments were made by external MPC member Silvana Tenreyro at the University of Surrey in a speech about models in macroeconomics.
"Although we have seen some unexpected weakness in the recent inflation and activity data, in my view, the most likely scenario is that the GDP news is short-lived, and we will need a limited and gradual tightening in Bank Rate over the next three years to keep demand growing in line with supply," she said.
"Since the picture for underlying demand should become clearer relatively soon, I was comfortable leaving policy unchanged," she added.
It follows the MPC deciding to hold interest rates at 0.5 per cent at its meeting in May, due to weak economic growth.
Read more: Pound falls as BoE holds interest rates
The Bank of England official also said she expected the tight labour market to continue to feed through into domestic cost, as she described the perceived breakdown in the relationship between slack and inflation as "misplaced."
"I expect that the narrowing in labour market slack we have seen over the past year will lead to greater inflationary pressures, as in our standard models," she explained.
In her speech, Tenreyro also said the Bank of England had revised down its forecast of headline quarter one GDP growth to 0.3 per cent, based on staff analysis using Google search data.
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