Britain’s economy is not out of the woods and the damage caused by the Covid-19 pandemic has only been partially repaired, a Bank of England policy official said.
Speaking as the new figures showed only a modest impact on consumer activity since “Freedom Day,” Jan Vlieghe said Threadneedle Street should be cautious about tightening its policies.
Vlieghe said the UK was still grappling with the Delta variant of the virus and the impact removing government support would have on an economy that was still struggling to return to pre-crisis production levels. was not clear.
His comments came as retail analysts Springboard said Britons remained reluctant to return to stores despite the lifting of all remaining statutory restrictions on Monday, July 19.
Attendance rose 3.3% the following week, but as of Tuesday, the increase has averaged 1.7%. Compared to the same period of 2019, attendance was down 23.3%, little change from the 24.9% drop the week before the restrictions were lifted.
Vlieghe said the Bank of England should ignore a temporary rise in inflation and that measures to lower the cost of living would be wrong.
In the latest in a series of interventions by members of the Bank’s Monetary Policy Committee over the past fortnight, Vlieghe made it clear that he would oppose either an interest rate hike or a reduction of the quantitative easing program at the committee meeting next week. .
He stressed that even when action was appropriate, the Bank would not need to be too aggressive as long-term factors – an aging population, higher debt levels and growing inequalities – all made lower the level of interest rates under control inflation.
Speaking to the London School of Economics, Vlieghe said: “I think it will remain appropriate to keep the current monetary stimulus in place for at least several quarters, and possibly longer.
“And when the tightening becomes appropriate, I think it won’t take much, given the low level of the neutral rate. “
Vlieghe’s intervention reduces the chances of the Bank taking action on August 5, with just two of the eight MPC members publicly supporting a stricter policy in response to an annual inflation rate hike to 2.5%.
Michael Saunders and Dave Ramsden both pleaded for the Bank to start pulling some of the stimulus it provided, but Vlieghe said that while the expected spike in inflation was likely higher than expected, he believed still that would prove temporary.
“This is due to supply bottlenecks and base effects, both of which are expected to ease over the next year,” he said.
Vlieghe, who left the MPC in September, said the UK “is not yet out of the woods in terms of the virus and the impact on the economy. Yes, the economy has grown rapidly, but according to the most recent data it is an average recession far from full employment. “
Although an EY Item Club forecast shows the UK is growing at its fastest pace in 80 years, Vlieghe said economic output in May was 4.5% below its December 2019 level. Unemployment was 300,000 higher than it was before the crisis and 1.3 million people were still on leave at the end of June.
“The Delta variant is still causing health and economic damage, both in the UK and the rest of the world, in a way that is likely to have an economic impact on the UK,” Vlieghe said.
Noting that various government support programs were coming to an end, including very large wage subsidies, he added, “I would like to see how the economy copes with this before adding monetary tightening to the fiscal tightening. “