The Bank of England’s Cunliffe says a prolonged rate hike campaign may be unnecessary

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LONDON, April 4 (Reuters) – Bank of England Deputy Governor Jon Cunliffe said on Monday that the central bank may not need to take sustained action to prevent inflation expectations from digging into public thinking as it has so far there are few signs of it.

Cunliffe, the only BoE policymaker who voted against the central bank’s March 16 decision to raise interest rates from 0.5% to 0.75%, warned against comparisons to the 1970s as a self-reinforcing spiral from inflation and expectations.

Cunliffe said he acknowledged the risk of second-round effects and that further monetary tightening may be needed. However, he stressed that companies and workers would not have the same pricing power as they did 50 years ago, a key difference.

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“I don’t think we’re seeing a psychology of sustained higher inflation anymore,” Cunliffe said in a speech to the University of London’s European Economics and Financial Center.

“I am not currently convinced that we must inevitably lean strongly and permanently against embedding an inflationary psychology.”

Consumer price inflation hit a 30-year high of 6.2% in February and the government’s budget watchdog forecast two weeks ago it would rise to nearly 9% by the end of 2022, contributing to the biggest drop in living standards since at least the 1950s would.

Cunliffe said the policy committee must instead assess both upside and downside risks to inflation and growth and use its tools “carefully and flexibly”.

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Reporting by Andy Bruce and David Milliken

Our standards: The Thomson Reuters Trust Principles.

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