UK Needs Current Stimulus At Least For Several Quarters, BoE's Vlieghe Says

The current monetary stimulus should be maintained for several quarters at least, and probably longer, Gertjan Vlieghe, an external monetary policy committee member of the Bank of England, said Monday.

"And when tightening does become appropriate, I suspect not much of it will be needed, given the low level of the neutral rate," he said in a speech to the London School of Economics.

Although the expected peak in inflation looks to be higher than previously projected, Vlieghe said the view remains the same that this peak is likely to be temporary.

Inflation is driven by supply bottlenecks and base effects, both of which are set to wane next year. Second, the UK is not out of the woods yet in terms of the virus and its impact on the economy.

Further, he observed that various government support schemes are coming to an end, including the all-important furlough scheme. Vlieghe said he want to see how the economy copes with that, before adding monetary tightening on top of fiscal tightening.

For all these reasons, the banker assessed that the current monetary policy should be retained at least for several quarters.

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