The Governor of the
But he said he does not see any evidence currently to suggest the increase will persist in the long term.
The Bank said in a report released earlier this month that it expects inflation to surge this year to 2.4 per cent in the final three months, largely due to energy prices.
But that spike will only be temporary and should return to around two per cent in the medium term.
Andrew Bailey told peers on the Economic Affairs Committee that the Bank’s forecast is for inflation to ‘pick up’ in the very near future as the economy bounces back as lockdown is eased.
Mr Bailey told peers this afternoon: ‘We have just produced a monetary policy report 12 days ago. Our forecast at the moment is that we do expect inflation to pick up in the next month or so really.
‘It has been under one per cent for my entire time as governor. Every opportunity I have had to write a letter to the Chancellor, to explain why inflation is more than one per cent below target, I have had to take.
‘We do expect that to change because there has been quite a strong shift in energy prices relative to where we were a year ago… so the judgement that the MPC has had to make is… do we think that those base effects which left on their own will be temporary, will not persist, and inflation will come back down to some point, do we think that it is most likely that inflation, which we put into the report 10 days ago we think could go above target if temporarily later this year for these base effects, do we think it will come back towards target or not?
‘Now, our judgement at the moment is that it will because we see the bounce back in the economy but we don’t see that sort of, in a sense, momentum continuing forward at that pace at all.
‘Fiscal policy for instance is very supportive this year but actually starts to tail off next year after the announcement at the Budget for instance.
‘Or, do we think it is going to persist, in which case it will present a challenge to us.
‘Now, we are watching that very carefully I can tell you. At the moment we don’t see that evidence but we will watch it, of course we must do, very carefully.’
The Bank of England and the Treasury have worked closely throughout the pandemic to keep the UK economy afloat as repeated lockdowns have wreaked havoc.
Mr Bailey today revealed that his ‘daily’ conversations with Mr Sunak were ‘dominated’ by the pair trying to understand coronavirus.
He said: ‘I can tell you that the Chancellor and I were talking at the height of this daily. I don’t think anybody should be surprised at that.
‘In fact I would contend that if we weren’t talking regularly people should be pretty worried that there isn’t proper contact.
Mr Bailey also revealed that he spoke to Chancellor Rishi Sunak every day during the height of the coronavirus pandemic last year
‘If you asked me what were we talking about, I would say two things. We were sharing our assessment of what we were hearing about the economy.
‘It is important to bear in mind we were in a situation of unprecedented uncertainty… that was the first thing.
‘The second thing that actually dominated our conversations was Covid. I think both the Bank and the Treasury were coming to terms with understanding an area which neither of us would confess to be experts in so we were both trying to work out what we were hearing from epidemiologists and try to turn it into something that we can interpret in terms of our objectives.
‘So I remember talking to the Chancellor, we were both trying to work out what an R number, what do you do with an R number, in terms of A, what does it mean and B, what does it mean for the economy.’
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