Dale’s comments in a speech in London today come before Chancellor of the Exchequer George Osborne presents his annual budget on March 20, when he may rethink the Bank of England’s remit. The chief economist said that while it is right that inflation targeting “should be questioned and challenged,” policy makers must take account of the potential economic costs of letting price rises get out of control.
“The argument that monetary policy can be used to expand demand with little or no implications for inflation challenges the consensus” that the best contribution of policy makers is to deliver price stability, Dale said. “We should be nervous about how quickly we overturn that consensus.”
The 10-year gilt yield dropped three basis points, or 0.03 percentage point, to 1.94%. The 1.75% bond maturing in September 2022 rose 0.24, or 2.40 pounds per 1,000- pound face amount, to 98.41. The yield has dropped 13 basis points this week.
The U.K. 10-year break-even rate, an index of inflation expectations that measures the yield difference between gilts and index-linked securities, fell for a second day. It slipped three basis points to 3.27%, after rising to 3.37%, the highest since September 2008 yesterday.
U.K. government bonds handed investors a loss of 1.1% this year through yesterday, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies. German bunds dropped 0.6% and Treasuries fell 0.9%.