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Broadbent: "It’s possible Bank Rate could be cut some time over the summer"

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  • "The direct effect on inflation of the pandemic and the war have now faded... What we’re now left with are the more persistent, second-round effects of that earlier surge on domestic inflation."
  • "How long these persist is unclear. If the process were entirely symmetric then you might expect these effects to unwind relatively quickly, within the next year or so."
  • "But the Committee has judged for some time that the process is likely to be asymmetric... Judging by what the Bank’s Agents are telling us about wage growth in 2024 – their forecast would entail almost no convergence to our wage equations through the rest of this year."
  • "On the other hand, the Agents are also reporting that firms feel less able than they did last year to pass through in full these higher wage costs. And if the origin of these second-round effects is the squeeze in real incomes in 2022, their recovery this year may matter. The more that’s regained, the less ground, relative to some notional “norm”, there is to make up. This is why I was content to reduce the scale of these persistence effects in the third year of the May MPC forecast."
  • "There is a range of views across the Committee on this point. In view of the rarity of events like this over the past, and the associated uncertainty about the future, that’s entirely understandable. Whatever the priors of its individual members the MPC will continue to learn from the incoming data and, if things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it’s possible Bank Rate could be cut some time over the summer."
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  • "The direct effect on inflation of the pandemic and the war have now faded... What we’re now left with are the more persistent, second-round effects of that earlier surge on domestic inflation."
  • "How long these persist is unclear. If the process were entirely symmetric then you might expect these effects to unwind relatively quickly, within the next year or so."
  • "But the Committee has judged for some time that the process is likely to be asymmetric... Judging by what the Bank’s Agents are telling us about wage growth in 2024 – their forecast would entail almost no convergence to our wage equations through the rest of this year."
  • "On the other hand, the Agents are also reporting that firms feel less able than they did last year to pass through in full these higher wage costs. And if the origin of these second-round effects is the squeeze in real incomes in 2022, their recovery this year may matter. The more that’s regained, the less ground, relative to some notional “norm”, there is to make up. This is why I was content to reduce the scale of these persistence effects in the third year of the May MPC forecast."
  • "There is a range of views across the Committee on this point. In view of the rarity of events like this over the past, and the associated uncertainty about the future, that’s entirely understandable. Whatever the priors of its individual members the MPC will continue to learn from the incoming data and, if things continue to evolve with its forecasts – forecasts that suggest policy will have to become less restrictive at some point – then it’s possible Bank Rate could be cut some time over the summer."