David Milliken

LONDON (Reuters] – As the economy continues to shrink and as the health of our labour market remains unclear, Silvana Tenreyro from the Bank of England advised that the Bank of England take a prudent approach when raising interest rates.

Tenreyro, who voted for the BoE to maintain its Bank Rate at 0.1% Thursday night, said that central banks had to make a choice between supporting recovery and addressing persistent inflation pressures.

However, central bankers shouldn’t rush to respond to growing inflation. This is especially true in Britain, which has an economy that was much less than before the COVID-19 pandemic.

Not just the Bank of England will need to adjust their real-economy and inflation goals. She spoke at an International Monetary Fund conference.

Tenreyro was previously cautious about raising interest rates.

The greatest uncertainty in Britain’s economic outlook was caused by the lack of labour market data. While unemployment remained low, there were questions about whether furloughed workers could find employment and whether the rate of participation would continue to fall.

According to the BoE, policymakers believe it is still valuable to wait for data from the government on the effects of end-of-government furlough support Oct. 1, before considering raising rates. Although an increase may be required.

Tenreyro stated that monetary policy shouldn’t be used to counter short-term factors as it would lead to additional volatility.

“But some of those factors may prove more persistent which means that central banks will be in trade-off territory. They have to find a compromise between how fast to bring inflation back on target and how long to sustain the economy’s recovery,” she said.