Former adviser to British Chancellor of the Exchequer Karen Ward warned that the Bank of England, having lost most of its ability to control inflation, may be forced to raise interest rates more than investors expected despite the rising risks of deflation.
And Bloomberg News quoted Ward as saying: The traditional transmission mechanisms in which raising interest rates limits the rise in prices have been weakened by the huge increase in savings during the Corona pandemic period and the rush to obtain low mortgage rates for long periods.
As a result of the above, it is likely that consumer spending will continue to be more flexible and inflation will continue for a longer period than the Bank of England forecasts, said Ward, who is currently the chief strategist for European markets at JPMorgan Asset Management.
Ward's warnings come the same week that former Bank of England officials, Adam Posen, Charles Goodhart and Kristen Forbes, warned that the bank would have to raise borrowing costs despite the downturn in the economy.
Economic data published yesterday showed that the British economy contracted during last March, contrary to expectations, with a contraction in consumer spending due to the rise in living expenses.
Analysts polled by Bloomberg Agency expect Britain's economy to shrink during the second quarter of this year, after households were hit by high energy prices and tax increases last April.
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