Written by David Milliken
LONDON (Reuters) – Bank of England policymaker Jonathan Haskell said the Bank of England is in a difficult position as the government’s expansionary fiscal policy appears to put it at odds with the Bank of England’s efforts to cool inflation.
“We’re in a difficult and uncomfortable situation, frankly, because I don’t like being in a situation where you have at least one institution – an independent central bank – being portrayed as being against another institution, the elected government,” he said Thursday.
“I am afraid that fiscal expansion in the context of tight supply will be very difficult,” he added during a panel discussion hosted by the North West Reform Synagogue in London.
Haskell is an outside member of the Bank of England’s Monetary Policy Committee, and one of three policymakers who voted to raise interest rates by three-quarters of a percentage point to 2.5% this week, rather than the half-point increase favored by the majority.
British inflation hit a 40-year high of 10.1% in July, and the Bank of England raised interest rates by half a percentage point in two successive rate meetings, its biggest hike since 1995.
Finance Minister Kwasi Koarting is due to provide more details on the government’s economic plans in a financial statement on Friday. He is expected to confirm permanent tax cuts of around 30 billion pounds ($34 billion) and give details of energy subsidies to households and businesses that could cost more than 100 billion pounds.
Earlier on Thursday, Bank of England Governor Andrew Bailey wrote in a letter to Kwarteng that the household energy cap would reduce inflation in the short term but could also create price pressures in the medium term.
The Bank of England said it will pay more attention to new government policies in its November economic forecast.
“If we take the government at their word, what they are hoping is that fiscal expansion will lift the weak growth rate and … if we expand the supply side of the economy, that takes us out… and that takes us out,” Haskell said.
(dollar = 0.8883 pounds)