Economy

Truss energy plans could slow inflation, says Bank of England

Governor welcomes new prime minister’s intention to announce plans this week

Liz Truss moved into Downing Street on Tuesday, promising to help Britain through its gas price shock. Photograph: Dan Kitwood/Getty Images

Wed Sep 7 2022 - 11:15

Britain’s surging inflation could slow thanks to plans by new prime minister Liz Truss to help households and businesses with sky-rocking energy costs, but it is too soon to say what that means for interest rates, the Bank of England’s chief economist said.

“One of the things that does seem to be under consideration ... is a change to the relationship between gas prices and retail gas prices in a direction that will lower headline inflation, relative to what we were forecasting,” Huw Pill told lawmakers.

While the subsidies for households could add to demand and create more inflation pressure, “net-net on the implications for headline inflation in the short term, I would expect that to see a decline”, Mr Pill said.

Ms Truss moved into Downing Street on Tuesday, promising to help Britain through its gas price shock, and she is expected to announce details of her plans on Thursday.

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Mr Pill said the implications for monetary policy from the government’s plans remained unclear. “I think there’s just too much uncertainty to have a strong view right now, given the lack of details.”

But he added that the British central bank would ensure fiscal policy did not generate inflation.

Bank of England governor Andrew Bailey, also speaking to parliament’s treasury committee, welcomed the plan by Ms Truss to announce her plans this week.

“It's not for us to comment on what fiscal policy will be and we will wait and see what it is ... but I do very much welcome the fact that there will be, as I understand it, announcements this week because I think that will help to, in a sense, frame policy and that's important,” he said.

“It’s important that there is a clear way forward on policy ... That will be important for markets to understand what is going to happen.” — Reuters

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