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A Bank of England policymaker on Tuesday moved to defend Threadneedle Street’s policy decisions during the pandemic era, which have come under criticism as inflationary pressure hots up.
Deputy Governor Ben Broadbent played down suggestions that loose monetary policy is to blame for an inflation shock.
‘It’s always possible, at least with the benefit of hindsight, to construct an alternative path for monetary policy over the past that would have kept inflation on target, even in the face of these subsequent shocks. But that’s not the same thing as saying that the actual policy was ’inevitably’ going to result in excessive inflation. Simulations suggest that, had that alternative (much tighter) policy path been followed, and then had Russia failed to invade Ukraine, inflation would now be materially below target,’ Broadbent said in a speech on Tuesday.
‘Certainly the very strongest claims that QE inevitably leads to rapid growth of commercial bank deposits (M4), on a par with that in the central bank’s balance sheet; and that this, in turn, inevitably leads to excessive inflation are not well supported by the evidence.’
The Bank of England next decides on interest rates about a week later, on May 11. The central bank was in focus again last week after a reading showed UK inflation is proving stickier than expected.
While the rate of yearly inflation tamed to 10.1% last month from 10.4% in February, it was above FXStreet-cited market consensus of 10%.
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