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3 Minutes to Read (Reuters) – LONDON (Reuters) – Due to an unexpectedly high spike in inflation, Bank of England interest rate-setter Michael Saunders indicated on Thursday that the central bank may decide to end its current program of government asset purchases early. The Bank of England and the financial area of the City of London in London, Britain, on November 5, 2020. REUTERS/File Photo/John Sibley Saunders said that prolonging asset purchases later this year, when price increases could exceed 3%, risks entrenching inflation expectations, a day after another top BoE member said the moment for action might be nearing. Consumer price inflation in the United Kingdom increased to 2.5 percent in May, according to figures released on Wednesday. In a speech, Saunders remarked, “The topic of whether to curtail our present asset acquisition program early will be under consideration at our next meetings.” “If activity and inflation indicators stay consistent with recent trends, and downside risks to growth and inflation remain low… it may be appropriate to reduce some of the current monetary assistance rather soon.” Following Saunders’ statements, the pound rose by more than half a cent versus the dollar and the euro, while British government bond prices plummeted on the potential of a halt to BoE purchases, pushing five-year gilt rates to a two-week high. In November 2020, the Bank of England announced that it would acquire another 150 billion pounds ($208 billion) of government bonds over the next year. Andy Haldane, the BoE’s chief economist, was a lone voice at the Monetary Policy Committee meetings in May and June, his final before departing the bank, calling for the scheme to be discontinued sooner rather than later. Saunders’ remarks added to evidence of a shift in the Bank of England’s position, as inflation rises significantly and the labor market strengthens, reducing the BoE’s risk of a jump in unemployment when government furlough support ends at the end of September. Deputy Governor Dave Ramsden indicated on Wednesday that inflation could touch 4% this year, and that the Bank of England may need to restore its monetary stimulus sooner than envisaged. Until far, the Bank of England has maintained that inflationary pressures from rising energy prices and supply-chain bottlenecks would be temporary as Western economies adjusted to the pandemic’s end. Higher short-term inflation caused by energy prices, according to Saunders, is not something the Bank of England can address, but he is concerned that other price pressures will remain over the two- to three-year time frame used by the Bank of England to target inflation. “A moderately tighter attitude… would assist guarantee that inflation risks in the 2-3 years ahead are balanced around the 2% target, rather than biased to the upside, as I assume the current policy stance is,” he said. He noted that policy tightening options included stopping the bond purchase program a month or two before it expires in late 2021 and taking additional monetary policy action in 2022. (1 dollar = 0.7200 pounds) David Milliken is the author of this piece. William Schomberg did the editing./nRead More

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