BoE deputy on “largest-ever peacetime liquidity crisis”

by Gill Montia

Story link: BoE deputy on “largest-ever peacetime liquidity crisis”

The deputy governor of the Bank of England has warned of the consequences of slowing growth and rising inflation.

Speaking at the Institute of Economic Affairs in London, Rachel Lomax painted a bleak picture of the global economy, saying outlook has “changed dramatically” in recent months as a result of the credit squeeze and the increased cost of energy and food.

She referred to the turmoil on the financial markets as ‘”the largest-ever peacetime liquidity crisis” and described the US sub-prime mortgage crisis as an “accident waiting to happen”.

Ms Lomax believes the current state of the credit markets “lends itself to a wide range of predictions about the possible course of events from now on, from the relatively benign to the frankly apocalyptic”.

Speaking about UK inflation, she expects this to “rise sharply in the near term” while economic growth will be “at below-trend rates over the next two years”.

With regard to further base rate cuts to boost the slowing economy, she explained: “If inflation expectations appear to be persistently elevated, the [Monetary Policy] committee will need to tolerate more slack to keep inflation on target. And that means it will have less scope to respond to slowing demand - the risk posed by the current turmoil in financial markets.”