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22 May 2015
Gilt yields will eventually rise – BOE MPC Shafik
FXStreet (Mumbai) - In a speech titled 'Interpreting the yield curve: warning or opportunity?’ today, Bank of England (BoE) Deputy Governor Minouche Shafik defended that there are legitimate reasons for the relatively low UK sovereign borrowing costs, and that one 'seek out the potential opportunities' offered by the current low level of UK gilt yields.
On inflation, Shafik noted, "First, the factors currently pulling down on headline inflation will not do so permanently, second the headwinds currently affecting demand in the economy will continue to gradually ease over the coming years and third, a return to productivity growth will facilitate potential output growth over the long term."
While she warned that there is a risk that the effects of the recent financial crisis will prove more persistent than previously thought, adding that the BoE's mandate is to reduce the probability of such an outcome. "Indeed, doing so has been my primary motivation in not voting in bank rate over my first 10 months on the MPC."
On inflation, Shafik noted, "First, the factors currently pulling down on headline inflation will not do so permanently, second the headwinds currently affecting demand in the economy will continue to gradually ease over the coming years and third, a return to productivity growth will facilitate potential output growth over the long term."
While she warned that there is a risk that the effects of the recent financial crisis will prove more persistent than previously thought, adding that the BoE's mandate is to reduce the probability of such an outcome. "Indeed, doing so has been my primary motivation in not voting in bank rate over my first 10 months on the MPC."