BoE’s Haskel: Current Stance Appropriate But Risks Tilted Downward

1 July 2020

By David Barwick – FRANKFURT (EconoStream) – The Bank of England’s policy stance is suited to the current environment but risks to the outlook are negative overall, Jonathan Haskel, external member of the BOE’s Monetary Policy Committee, said on Wednesday.

In a speech delivered via Zoom at the Brighton Chamber of Commerce, Haskel said nonetheless that economic activity appeared to be coming back more strongly than expected.

If there were a second wave of the pandemic, he said, the economic consequences would depend on factors including fiscal authorities’ reaction and the situation of other countries. He noted that ‘cautious behaviour by consumers is already built into our published scenario and we have demonstrated that we can respond quickly and effectively to financial market dysfunction.’

He added: ‘In conclusion, I believe the current stance of monetary policy is appropriate but, on balance, risks are to the downside.’

Despite the success of the BOE’s efforts to restore markets to normal functioning, the latter are still tighter than usual, he said.

‘This, combined with an uncertain economic forward path, and in my view, risks skewed to the downside concerning employment and more medium-term economic adjustments, prompted my vote and approval of a further expansion of asset purchases in June to guard against any unwarranted future tightening and help support the economic recovery as social distancing measures come off’, he said.

Inflation is well below the BOE’s 2% target, he observed. Moreover, economic slack is contributing to the downward price pressure and thus ‘supports our decision to maintain a historically loose monetary policy stance’, he said.

Haskel confirmed that the impact of the pandemic on output and unemployment this year would be ‘somewhere in line with the scenario we published in our May Monetary Policy Report.’

Still, he also spoke of ‘a glimmer of hope relative to our envisaged scenario, namely that activity appears to be coming back faster than we anticipated.’ The second quarter would thus be less negative than anticipated.