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July 14, 2021

The Bank of England was expecting “bumps in the way” as the economy reopened after the Covid-19 pandemic, Deputy Governor for Financial Stability Jon Cunliffe said, after U.K. inflation came in hotter-than-expected once again in June.

The U.K.’s latest inflation prints on Wednesday morning came in ahead of expectations, with the consumer price index up 0.5% month-on-month for June versus a Reuters poll consensus of 0.2%. This represented a 2.5% annual climb, the highest since August 2018 and up from 2.1% in May.

 The central bank has projected that inflation will peak above 3% by the end of the year as the economy bounces back from its historic decline in 2020, but will be transitory and does not require a hawkish pivot in monetary policy.

“One shouldn’t expect the reopening of the economy to be smooth, this is not something that you can just close down and reopen without bumps in the way,” Cunliffe mentioned to a CNBC correspondent.

He added that the central bank had long been expecting a “burst in demand” as households unleashed a lot of the involuntary savings accumulated during long periods of strict lockdown measures. Meanwhile, constraints to supply in both the goods and services sectors, along with the labor market, have added inflationary pressure.

Cunliffe said the key question the Bank will look to assess in its forecast due in August is how persistent these pressures are.

“Are these factors that the economy will then adjust, supply will recover and adjust, and demand after the initial burst will cool off, or is this something more persistent that will become embedded in people’s expectations?” he said, adding that the Bank will continue to try to appraise the situation as the economy returns to normal functioning.

British Prime Minister Boris Johnson has committed to removing the final layer of Covid-19 restrictions on July 19 despite the country facing rising cases of the delta variant, where other European nations have reintroduced measures to contain their outbreaks of the new strain.

Bank of England Governor Andrew Bailey said earlier this week that the rapid rollout of the U.K.’s vaccination program has boosted the country’s economic outlook, even as it battles surging cases of the highly-transmissible delta variant of Covid-19.

The Bank held its monetary policy steady at its last meeting — keeping its main lending rate at a historic low of 0.1% and its asset purchase program at its current £895 billion ($1.3 trillion) level — but vowed to monitor rising inflation.

On Tuesday, the Bank also scrapped its pandemic-era restrictions on banks paying dividends, saying its stress tests had confirmed that the likes of HSBC, Barclays and other major lenders had ample capital to survive the economic fallout from the pandemic.





Source: CNBC
Image Source: Getty Images