Andrew Haldane, Chief Economist at the Bank of England and Chief Executive Officer, Monetary Analysis and Statistics
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UK bond yields rose on Friday after the Bank of England chief economist Andy Haldane warned that inflation could become difficult to tame, leading to more assertive policy action.
In a recorded lecture published on Friday, Haldane noted that there are both upside risks and disadvantages for the inflation outlook, but warned that an inflationary “tiger” has awakened.
“The combined effects of unprecedented high shocks and unprecedented high levels of policy support have woken him up. In this environment, the act of taming the tigers facing central banks is difficult and dangerous,” Haldane said.
Global markets have been nervous over the past week due to a 10-year increase in US Treasury yields, driven in part by rising inflation and growth expectations, as Covid-19 vaccines are launched and refilled consumer demand is potentially triggered.
Earlier this week, US Federal Reserve Chairman Jerome Powell tried to allay concerns that the Fed would tighten monetary policy in the face of rising inflation. Powell has vowed to maintain his unprecedented accommodative stance to take the economy out of the coronavirus crisis, with inflation and employment expected to remain below target.
Haldane, considered the most hawkish member of the Bank of England’s Monetary Policy Committee (MPC), acknowledged the possibility that as vaccines are launched and normalcy returns, inflation will stabilize. He added that disinflationary forces could return even if the risk of the pandemic lasts.
“But for me, there is a tangible risk, inflation is proving more difficult to tame, requiring monetary policy makers to act more assertively than is currently valued in the financial markets,” he said.
“People are right to warn about the risks of central banks acting too conservatively by tightening policy prematurely. But for me, the biggest risk right now is the satisfaction of the central bank to allow the (big) inflationary cat out of the bag . “
The yield of the 10-year-old British Gilt increased to 0.816% after the launch of the speech, while the rates of 5-year-old and 2-year-old Gilt rose to 0.396% and 0.121%, respectively.