LONDON, May 21 (Reuters) – Bank of England policymaker Alan Taylor said on Thursday he saw less risk of so-called second-round inflation effects from rising energy prices caused by the Iran war than from Russia’s full-scale invasion of Ukraine in 2022.
“Economic conditions are such right now that second-round effects are less likely to materialise than they did in 2022 but it’s an uncertain situation,” Taylor said in an event organised by news provider MNI.
However, interest rate hikes might be needed in the worst of the central bank’s three scenarios for the possible impacts of surging energy prices on the UK economy, he said.
Taylor was one of the strongest proponents of interest rate cuts on the Monetary Policy Committee before the war. He voted with the 8-1 MPC majority to keep rates on hold in April pending clarity on the extent of economic damage caused by the conflict.
In his comments on Thursday, Taylor said rising borrowing costs in markets already represented a tightening of financial conditions, echoing comments on Wednesday by BoE Governor Andrew Bailey who said the central bank had time to assess the impact of the energy price shock.
“We think at the moment, in particular with the tightening of financial conditions, there is enough restrictiveness in the system to keep a lid on inflationary pressures sufficiently for now,” Taylor said.
Financial markets are pricing in two quarter-point increases in interest rates by the BoE by the end of the year.
Taylor said he thought information about price changes by companies would be the thing to watch in the coming months because any impact of the Iran war on wage demands would probably be slower to appear.
(Reporting by William Schomberg; writing by Suban Abdulla)
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