Ben Broadbent: Lags, trade-offs and the challenges facing monetary policy

Speech by Mr Ben Broadbent, Deputy Governor for Monetary Policy of the Bank of England, at the Leeds University Business School, Leeds, 6 December 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Good morning! Thank you for asking me to speak to you today. It's a great pleasure to do so in person, something I haven't been able to do for almost two years. Virtual meetings are all very well – and were clearly indispensable during the worst of the pandemic – but I think there's something missing if that's the only way in which we ever talk to each other. It's an additional pleasure to be in Leeds. As you may know, as part of a plan to increase our staff presence across the UK we announced earlier this year we'd be setting up a new hub right here in Leeds.

I'm coming here at an extraordinary time for the economy in general and for monetary policy in particular. Annual CPI inflation rose to over 4% in October, with the jump in domestic energy bills the single most important contributor to the change on the month. The aggregate rate of inflation is likely to rise further over the next few months and the chances are that it will comfortably exceed 5% when the Ofgem cap on retail energy prices is next adjusted, in April. The cap is based on a trailing average of forward prices in wholesale energy markets. The relevant period for next April is between August this year and February 2022. Two-thirds of the way through we can already be reasonably certain (unfortunately) of a further significant rise in retail energy prices next spring (Chart 1).