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Bank of England official says his bank's strategy is to change the bank rate gradually

Bank of England official says his bank's strategy is to change the bank rate gradually

The Bank of England's strategy is to change interest rates gradually to keep inflation under control, a bank official said Wednesday, an approach he acknowledged might allow the economy to slow somewhat.
In a speech before the Institutional Money Market Funds Association carried on the Bank of England's Web site, Paul Tucker said the British central bank's broad strategy was to offset "some, but not all" of the shock generated by the tightening of credit conditions worldwide since the collapse of the U.S. subprime mortgage market.
"To be clear, this approach probably means allowing a degree of slack to develop in the economy," said Tucker, who serves as one of nine members of the bank's rate-setting Monetary Policy Committee.
Under normal circumstances, the bank would cut its interest rate to compensate for the effects of an economic slowdown, Tucker said. But he warned that conditions did not favor a "business as usual" approach to demand management, explaining that rising commodity prices and the decline in the sterling's exchange rate threatened to raise inflation over the medium term.
Tucker said the bank needed to try to meet its official inflationary target of 2 percent if it was serious about protecting the British economy from the stresses of the credit crisis.
He added that, in the near term, consumer price inflation was very likely to rise "materially above" the 2 percent target.
That echoed testimony by Bank of England Governor Mervyn King, who told lawmakers last week he expected inflation to rise near 3 percent in coming months before falling back closer to 2 percent later this year.


Updated : 2021-10-23 18:46 GMT+08:00