Bank of England’s Haldane warns of inflation; bond yields rise

UK bond yields rose on Friday after Bank of England chief economist Andy Haldane warned inflation could become hard to tame, prompting more assertive policy action.

In a recorded lecture released on Friday, Haldane noted that there were both upside and downside risks to the inflation outlook, but warned that an inflationary “tiger” had awakened.

“The combined effects of shocks of unprecedented magnitude and an unprecedented level of political support stirred him from his sleep. In this environment, the act of tiger taming facing central banks is difficult. and dangerous, ”said Haldane.

Global markets have been nervous over the past week due to the rise in the 10-year US Treasury yield, in part due to rising expectations for inflation and economic growth as Covid-19 vaccines are rolled out and that pent-up consumer demand is potentially unleashed.

Earlier this week, U.S. Federal Reserve Chairman Jerome Powell sought to allay fears that the Fed would tighten monetary policy conditions in the face of rising inflation. Powell pledged to maintain his unprecedented accommodative stance taken in order to pull the economy out of the coronavirus crisis, predicting that inflation and employment would stay below target.

Haldane, considered the most hawkish member of the Bank of England’s Monetary Policy Committee (MPC), acknowledged the possibility that as vaccines are rolled out and normalcy returns, inflation will set in. stabilizes. He added that disinflationary forces could even return if the risks of a pandemic continued.

“But, for me, there is a tangible risk of inflation which is proving more difficult to tame, forcing monetary decision-makers to act with more confidence than what is currently valued in the financial markets,” he said. he declares.

“People are right to warn of the risks of central banks acting too conservatively by prematurely tightening their policies. But, for me, the biggest risk right now is central bank complacency allowing the (big) inflationary cat out of the bag. “

The UK 10-year Gilt yield rose to 0.816% after the speech was released, while the 5-year and 2-year Gilt yields climbed to 0.396% and 0.121% respectively.