BoE’s Tenreyro: Likely to See Disinflationary Pressures Some Time

15 July, 2020

By David Barwick – LONDON (EconoStream) – Downside risks to demand and the likelihood of persistent disinflationary pressures are among the factors that led Silvana Tenreyro, External Member of the Bank of England’s Monetary Policy Committee, to support additional monetary accommodation last month, she said on Wednesday.

Speaking at a London School of Economics webinar, Tenreyro, according to a text of her remarks made available by the BOE, said that incoming data pointed to Q2 GDP coming in almost a quarter below its peak in Q4 of last year, an improvement versus what the MPC had envisioned in May, but that she did ‘not read too much into the precise figure’.

The decline and subsequent rebound of output chiefly reflect lockdown measures, but whether developments will attain the shape of a V hinges on potential feedback from increased unemployment and on the impact of social distancing, she said. ‘… I think that this will be interrupted by continued risk aversion and voluntary social distancing in some sectors, remaining restrictions on activities in others, and in general, by higher unemployment’, she said.

Tenreyro said she thus saw ‘considerable downside risks for demand relative to supply’. Moreover, a weak global outlook, elevated uncertainty – also related to a possible second wave of the pandemic – and muted consumption prospects will all restrain business investment, she said.

‘Putting this demand outlook together with the pre-existing weakness in core inflation, we are likely to see disinflationary pressures for some time’, she said by way of explaining her support for more stimulus last month.

‘As with the rest of the committee, I remain ready to vote for further action as necessary to support the economy and ensure inflation returns to target’, she added.

At the meeting of the BOE’s Monetary Policy Committee ending on 17 June, only one member did not support the MPC’s decision to increase by £100 billion the target stock of purchased UK government bonds, financed by the issuance of central bank reserves, taking the total stock of asset purchases to £745 billion.