그만큼 Bank of England will raise interest rates more aggressively to tackle soaring living costs if there are signs of inflation becoming persistently higher for longer than expected, its chief economist has warned.
Huw Pill said Threadneedle Street was on high alert to take “forceful” action if there were signs of a wage-price spiral taking hold or if companies continued to raise their prices.
The central bank raised interest rates by 0.25 percentage points on Thursday to 1.25%, while warning that inflation was expected to peak above 11% later this year as surging household energy bills and the rising cost of a weekly shop hit families across the UK.
In comments signalling that the Bank was willing to go further with a 0.5-point rise in future, Pill told Bloomberg TV: “If we see greater evidence that the current high level of inflation is becoming embedded in pricing behaviour by firms, in wage-setting behaviour by firms and workers, then that will be the trigger for this more aggressive action.”
Pill insisted that the central bank had not acted too late to curb the highest rates of inflation for four decades, despite raising its forecast for consumer price inflation for the fifth successive time on Thursday.
The member of the Bank’s monetary policy committee (MPC) voted in the majority for a 0.25-point interest rate rise on Thursday, while three of his colleagues who are external membersof the MPC backed a larger half-point increase in a 6-3 split.
The US Federal Reserve raised interest rates by 0.75 points on Wednesday, the biggest single increase since 1994, amid growing concerns over the strength of inflation in the world’s biggest economy.
“We started earlier than some other central banks. Cumulatively, since we started (in December), we’ve done as much as other central banks have done more quickly in recent times,” Pill said.
The Bank is facing heavy criticism from cabinet ministers as Boris Johnson’s government struggles in the polls at a time when British households are suffering the biggest annual fall in living standards since the 1950s.
Letters exchanged between Rishi Sunak and the Bank’s governor, 앤드류 베일리, after Thursday’s rate increase demonstrated a marked shift in tone, reflecting the tensions between Westminster and Threadneedle Street. “It is imperative to bring inflation back down to target and to keep it anchored there,” Sunak wrote.
In contrast to usually unremarkable letters exchanged between chancellors and central bank governors – required when inflation moves more than one percentage point away from its 2% target – the chancellor warned that he expected action.
“I know and expect that you and the other members of the MPC will take the action necessary to get inflation back on target and ensure inflation expectations remain firmly anchored,” he said in his letter to Bailey.
Since changes made under Gordon Brown in 1997, the central bank has been operationally independent.