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Free AccessMNI 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
[TOPICS: M$B$$$,M$E$$$,M$$BE$]
To read the full story
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Please enter your details below.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.