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LONDON, Oct 14 (Reuters) - The Bank of England should not
raise interest rates to tackle a surge in inflation caused by
higher prices for energy and semi-conductors if it thinks these
effects will be short-lived, BoE policymaker Silvana Tenreyro
said.
Investors currently expect the BoE to raise interest rates
from their current 0.1% before the end of the year, but last
month's BoE policy minutes showed officials were split over
whether certain pre-conditions for a rate rise had been met.
Tenreyro has previously urged caution in considering
tightening monetary policy due to the large amount of slack she
still sees in Britain's economy after the pandemic, and recent
data appears to have strengthened her views.
"Activity has come in weaker than we anticipated in our last
forecast and we remain a normal sized recession below the
pre-COVID level of GDP," she told https://www.business-live.co.uk/economic-development/raising-interest-rates-counter-one-21853303
the Western Mail newspaper during a visit to speak with
businesses in Wales.
August GDP data released on Wednesday showed Britain's
economy is on course to grow by less in the third quarter than
the BoE had forecast, although revisions to earlier data show
output was closer than previously thought to its pre-COVID
level.
Surging natural gas prices and supply-chain bottlenecks mean
that the BoE expects inflation to exceed 4% at the end of the
year and remain around that level in the first half of 2022,
bolstering market bets that the BoE will raise rates soon.
Tenreyro pushed back against this assumption.
"Typically, for short-lived effects on inflation, such as
the big rises in the prices of semiconductors or energy prices,
it would be self-defeating to try to respond to their direct
effects," she said.
"There is uncertainty on the exact persistence and the size
of these big pick-ups in prices," she added. "If some effects
were to prove more persistent, it would be important to balance
the risks from a period of above-target inflation with the cost
of weaker demand," she added.
(Reporting by David Milliken, editing by Andy Bruce)