However, according to the economist, a delay in raising interest rates may reinforce the escalation of inflation expectations and force more sudden monetary tightening in the future. Saunders noted that the risks point to a prolonged period of high inflation in the UK, with the continuing uneven economic recovery on several dimensions.
But for him, monetary policy can do little to deal with supply issues. “There isn’t much monetary policy can do to deal with factors that have only temporary effects on inflation – affect the near-term outlook but not the inflation-related policy horizon,” he said.
Saunders highlighted that the economic effects of the pandemic have been greater than those of Britain’s exit from the European Union – a measure that has markedly reduced the openness of the British economy. But he said that if the economy maintains its current pace, the interest rate path will be positive.
