UK officials should consider lifting the Bank of England’s inflation target from 2% once rampant price growth is brought under control, according to one of Chancellor Jeremy Hunt’s advisers.
(Bloomberg) — UK officials should consider lifting the Bank of England’s inflation target from 2% once rampant price growth is brought under control, according to one of Chancellor Jeremy Hunt’s advisers.
Karen Ward, chief market strategist for EMEA at JPMorgan Asset Management, made her comments as central banks face up to a prolonged period of high interest rates to drag inflation back to target.
However, Ward — one of the experts Hunt looks to for independent advice — said the current target leaves the BOE with difficult options at times when inflation is at risk of settling below 2%.
“I personally think when that conversation does happen, we really should question whether two is the right number,” Ward told Bloomberg’s In the City podcast.
“We’ve learned over the last 10 years that zero bound has been a real pain, and actually it’s been hit and we’ve been stuck there,” said Ward, who sits on Hunt’s Economic Advisory Council. “All these other tools that they pulled out when they hit zero, such as quantitative easing [and] negative interest rates, unless you believe they are perfect substitutes for interest-rate policy, I think there is a conversation to be had about anchoring the system slightly higher.”
The UK government sets the target and has shown a willingness to tweak the remit it gives the BOE in recent years, such as giving it green goals.
However, BOE policymakers have strongly resisted suggestions that the inflation target should be changed amid concerns that altering it at a time of soaring prices would deal a further blow to its credibility.
“I think there should be a conversation about whether three is a better number than two but it’s a conversation to have when we are at two,” Ward added.
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