BOE Should Rethink Route to 2% Inflation, NatWest’s Davies Says - BLOOMBERG
BY Bloomberg News,
(Bloomberg) -- The Bank of England risks “unpleasant” results if it tries to bring inflation down to its target of 2% too quickly, NatWest Group Plc’s chairman has warned.
Howard Davies told Bloomberg Television on Monday that he expected inflation to prove persistent and said he would prefer rate setters to aim for 3% or 4% next year.
Inflation in the UK economy is “more embedded than we wanted,” Davies said. “If they really try to get to 2% next year then it’s going to be unpleasant. They would have to raise rates quite a bit and in order to get down to that you’ve got to change expectations, and changing expectations is tough.”
Davies was a founding member of the BOE’s Monetary Policy Committee when the Treasury handed the central bank authority over interest rates in 1997. He went on to lead the Financial Services Authority.
The BOE’s target is 2% at all times and its forecast is for inflation to drop to near 2% around the end of this year from 10.1% in January. Firms polled in February said they expected inflation to be at 5.9% in a year’s time, down from 6.4% in January, the Decision Maker Panel report showed.
--With assistance from Francine Lacqua, Tom Mackenzie and Caroline Hepker.