BoE Deputy Governor Ben Broadbent said in a speech that firstly, “for as long as it’s in place, the government’s Energy Price Guarantee has the effect of limiting headline inflation and, to that extent, any related strengthening of second-round (and more persistent) effects on domestic inflation.”
Secondly, “by the same token, however, it mitigates the severity of the hit to household incomes and thereby supports domestic demand,” he added. “As the Committee noted last month, this would – all else equal – add to inflation in the medium term.”
“Compared with the forecast we had in August, the MPC has judged that the second effect is likely to outweigh the first,” he said.
But Broadbent added, there is uncertainty about the “nature and duration” of the energy subsidies. “The MPC will take account of any fiscal news in the forthcoming Medium-Term Fiscal Plan, as well as any other news relevant for the medium-term inflation outlook, in its next set of forecasts,” he said.
