BoE rate-setters lay out inflation concerns

BoE rate-setters lay out inflation concerns

	Published : Tue, 27 Mar 2007 12:02 By : Agencies Print this Story

LONDON (AFX) - Bank of England rate-setters laid out a number of concerns they will be looking at over the coming months in forming judgements about the inflation profile and whether further interest rate rises will be needed.

Addressing MPs on the influential Treasury Select Committee, the BoE's governor Mervyn King, deputy governor John Gieve and Kate Barker, one of the four external members on the nine-member Monetary Policy Committee, expressed their concern about the rise in the pricing power of companies evident in surveys from the likes of the Confederation of British Industry.

Gieve also warned about the upside risk emanating from the possibility of higher than anticipated consumption, while Andrew Sentance, another external member, warned about the pick-up in inflation expectations arising from above-target inflation.

Meanwhile Rachel Lomax also cautioned against reading too much into the recent spike-up in RPI inflation, noting that much of it has to do with the 'perverse' effect of the BoE raising rates in that it pushes up mortgage payments, which are part of the RPI measure.

Overall, the BoE's rate-setters appeared to be somewhat surprised that the pick-up in inflation, particularly the rise in the annual RPI measure to a 16-year high of 4.7 pct in February, has not fuelled higher wage settlements. Barker noted that pay settlements have more to do with how a company is doing and on the demand/supply balance.

'I did recognise it as a risk but so far the evidence hasn't been realised but we are a long way from knowing,' she said.

Gieve said RPI could have an influence on inflation expectations and therefore may affect what workers demand 'but not what they get'.

In addition, he said the rise in the number of people getting bonuses mean that the traditional pay round may be less important than it once was.

Gieve also said the most important labour market event in the last couple of months has been the decision by Chancellor of the Exchequer Gordon Brown to peg the average pay rise in the public sector to 1.9 pct.

pan.pylas@thomson.com

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