Bank of England's Vlieghe says UK not facing an economic 'boom'

·2-min read
FILE PHOTO: A general view of the Bank of England in the City of London financial district

LONDON (Reuters) - Sharp economic growth in Britain this year should not be confused with a normal boom, given the amount of ground lost last year during the coronavirus pandemic, Bank of England policymaker Gertjan Vlieghe said on Monday.

Vlieghe reiterated BoE forecasts that inflation was likely to overshoot its 2% target later this year, due to temporary bottlenecks and base effects, but stressed the BoE would look to the medium term when setting interest rates.

"The fact that we're going to have, or we're likely to have, temporarily high growth rates and temporarily high inflation in the coming months, is not the main concern of monetary policy," Vlieghe said at an event hosted by King's College London's Qatar Centre for Global Banking and Finance.

"Instead, monetary policy will focus on returning to inflation sustainably to its target, which requires focusing on the medium term outlook," he added.

Britain's economy shrank almost 10% last year, its biggest slump in more than 300 years, but official unemployment has barely risen due to a government furlough programme.

Vlieghe said the economy would need to grow very rapidly over the coming months to absorb the millions of workers whose furlough payments are scheduled to end by Sept. 30.

This week British pubs and restaurants can resume serving customers indoors for the first time in months. But Prime Minister Boris Johnson warned last week that a new Indian variant of COVID could derail plans for a full lifting of restrictions planned for late June.

Vlieghe said he still believed that quantitative easing bond purchases were likely to offer only limited economic stimulus while long-term interest rates remained very low. Instead, he welcomed the fact the BoE would soon be able to cut interest rates below zero if needed.

Vlieghe's term as an external member of the Bank of England's Monetary Policy Committee expires on Aug. 31.

(Reporting by David Milliken, editing by Andy Bruce)

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