Broadbent Says BoE Can Tolerate High Inflation Than Larger Rise In Unemployment

(RTTNews) - The Bank of England could do more to prevent a rise in unemployment if there was no inflationary pressure brought on by the weakening in the pound sterling, Deputy Governor Ben Broadbent said Friday.

"The MPC [Monetary Policy Committee] would be less inclined to accommodate above-target inflation if it didn't also expect demand to fall slightly short of that supply potential; it would be able to do more to prevent any rise in unemployment if it weren't for the inflationary pressure brought about by the fall in the currency," Broadbent said in a speech.

British politicians had criticized BoE Governor Mark Carney for a gloomy warning on the U.K. economy before the 'Brexit' vote late June. In August, the bank had announced a rate cut and a massive quantitative easing expansion to shield the U.K. economy from the 'Brexit' shock.

However, data since the vote suggested that the economic slowdown was less severe than the central bank projected.

In October, Prime Minister May said the loose monetary policy was having "bad side effects". This week, Carney said global leaders criticizing central banks for the low interest rate environment was indulging in a massive blame deflection exercise.

In its rate-setting session on November 3, the bank raised its near-term growth and inflation forecasts as the depreciation of sterling lifted import prices, while boosting exports.

The bank also replaced its statement from September that majority of policymakers expect to support a further cut in the Bank Rate with a view that "monetary policy can respond, in either direction."

"We can tolerate high inflation because the alternative is a larger rise in unemployment, and weaker wage growth; put another way, we expect to have to accept those things (to some extent) in order to prevent inflation from rising further above the target," Broadbent said.