BoE governor Andrew Bailey predicts inflation will have halved by the end of this year, thanks to falling energy bills
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Former IMF economist Mohamed El-Erian, who is president of Queens College Cambridge and an adviser to the insurer Allianz, said he would not be surprised if the BoE raised rates again in June to bring down inflation.
Speaking on BBC Radio 4’s Today programme, he said:
“The case for a rate rise is very simple. Inflation remains too high and there is evidence that inflationary pressures are persistent.
And we have to follow what the Federal Reserve has done [it raised US interest rates last week]. So when you put all that together the Bank of England has no choice but to raise interest rates and that is what the market is priced for.”
“We see the Bank of England walking a very narrow path. It is a path of financial stability, price stability and growth.
“If it always does the rate increases it tips the economy into recession and causes financial stress, especially for households on the mortgage side. But if it doesn’t do enough [the BoE] falls on the other side of this narrow path whereby inflation gets embedded in the system.”
“Whatever the Bank of England does is necessary but not sufficient. We need help from elsewhere. Why is UK inflation twice that in the US? Why is it so much higher than what the European Central Bank is seeing? For three reasons. Our productivity has been lagging. Our labour market is less flexible and we decided to rewire our international relationships after Brexit.
“These are things the BoE cannot do. And it needs a lot more help from other government agencies to make its job easier.”