BoE chief: Rates path to be materially different
Echoing governor Mark Carney’s point that any increase in the UK benchmark from 0.5% will be gradual, Mr Broadbent told fellow central bankers in Jackson Hole, Wyoming, that “the path of interest rates that’s necessary to meet our mandate is going to be materially different than it has in the past.”
He was speaking on a panel along with Haruhiko Kuroda, governor of Bank of Japan, and Alexandre Antonio Tombini, governor of Brazil’s central bank.
Mr Broadbent used the conference, organised by the Federal Reserve Bank of Kansas City, to argue the financial crisis has changed the economic landscape and central banks must now consult labour-market data to assess price pressures in the economy.
“The output data are no longer sufficient statistics for inflationary pressure: even if you have to wait a while to see them, movements in unemployment become important too,” he said. “When productivity growth is no longer so predictable, life is a little trickier.”
His comments come a year after the BOE introduced forward guidance and linked policy to unemployment. He said stagnation in productivity since the crisis meant there was more uncertainty about UK potential growth and that labour data help officials to analyse spare capacity and make better policy judgments.
For example, strong economic growth may require extra resources, which may add to inflation pressure in the economy. However, the pickup may also be accompanied by productivity gains, which would not require tighter policy, he said.
Job figures “give one a better steer about the evolution of spare capacity than output growth alone,” he said. “So, even if you have to wait a while to get it, information from the labour market becomes more valuable the less certain one’s estimate of underlying productivity growth.”
Mr Broadbent noted a drawback was that employment developments often lag the broader economy.
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