MNI POLICY: BOE Broadbent Sees Chance Of Below-Zero Inflation

-Broadbent Not Expecting Entrenched Deflation; Sub-zero End 2020 Plausible

By David Robinson

     LONDON (MNI) - UK inflation could dip below zero at the end of this year

and into early 2021, Bank of England Deputy Governor Ben Broadbent said on

Tuesday, although he added that he did not expect entrenched deflation.

     In a business briefing, Broadbent also said that, at first glance, the

changes to the Job Retention Scheme unveiled Tuesday by Treasury head Rishi

Sunak were broadly in line with the assumptions made in the economic scenario

published by the Bank last week.

     The following are points from the briefing:

     -Asked about the likelihood of headline inflation turning negative,

Broadbent noted that in the economic scenario contained in last week's Monetary

Policy Report "inflation at the end of this year, on our best guess at the

moment, will go to around zero. So clearly there is a chance of that."

     The decline in inflation came in part from increased spare capacity and

higher unemployment, feeding through into lower wage pressures.

     "Quite a bit of it also comes from the simple, arithmetic effect of the

fall in oil prices and, more generally, other wholesale energy prices as well,"

he said.

     "I wouldn't describe that .. as deflation which would involve a more

entrenched, self-generating period of low inflation, where expectations get low

and wage growth gets very low in nominal terms, although that is something we

always watch for," he said.

     In an MNI interview published Monday former MPC member Martin Weale

highlighted the gap between the consumption patterns factored into headline

inflation and what people are spending on now, with the inflation index no

longer a reliable guide to the cost of living.

     -Broadbent gave the Bank's first response to the announcement Tuesday by

Chancellor of the Exchequer Rishi Sunak that the Job Retention Scheme, under

which the state provided 80% of furloughed employees earnings, would be extended

for four months, until the end of October.

     Sunak said that while there would be no changes to the scheme until the end

of July, in August to October it would be altered to allow employees under it to

return to part-time work, with costs shared between employers and the state.

     Broadbent said that in its economic scenario the Bank had assumed that the

government support scheme "would be gradually wound down in lockstep with the

gradual unwinding of the distancing measures," through the June to end-September

period.

     The announcement of an extension until the end of October with tapering

"doesn't look out of line with what we had been assuming for the scenario,"

Broadbent said.

--MNI London Bureau; tel: +44 203-586-2223; email: david.robinson@marketnews.com

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