The Global Economy and UK Inflation

Abstract

In this speech, Andrew Sentance, a member of the Monetary Policy Committee, reviews the way in which the global economy affects UK inflation and hence monetary policy. He argues that global inflationary pressures have become more significant in recent years, reflecting strong world economic growth and rising commodity prices. This contrasts with the more disinflationary global climate in the late 1990s and early 2000s. While these global factors have the potential to create short-term inflation volatility, monetary policy should be able to keep UK inflation on target over the medium term through its influence on overall demand, the exchange rate and price expectations. For the MPC, judging the appropriate monetary response to global economic developments is a continuing challenge.