LONDON (Reuters) -Bank of England Deputy Governor Sarah Breeden said on Tuesday she had no pre-determined path for interest rates in mind but that it would be important for policy to stay at restrictive levels to keep inflation pressure in check.
In her first speech since joining the Monetary Policy Committee in November, Breeden said scenario analysis offered a good guide to future decision-making on interest rates.
She outlined two scenarios: a high inflation one in which Bank Rate would have to rise close to 7% from 5.25% now, and a low inflation scenario of weak demand in which borrowing costs could fall through 2024.
Breeden said that neither represented a forecast, but added that the high inflation scenario was “clearly the more costly”, which meant it was more important to lean against such an outcome.
Overall her comments were similar to those of Governor Andrew Bailey, who has also said policy should stay restrictive, citing Britain’s vulnerability to persistent inflation in comparison to major advanced economy peers.
“I will approach each vote humbly and pragmatically, with no pre-determined policy path in mind,” Breeden said in a speech to the Institute of International Finance.
“Given what we know now, I can say that it will be important for monetary policy to be restrictive for an extended period in order to return inflation sustainably to the 2% target in the medium term.”
(Reporting by Andy Bruce; Editing by Sachin Ravikumar and Sarah Young)