UK inflation could top 5% by early 2022, says Bank’s new chief economist

MPC ‘finely balanced’ over whether to raise interest rates in November, adds Huw Pill

Inflation in the UK could rise above 5% by early next year, according to the Bank of England’s new chief economist.

Huw Pill, who replaced Andy Haldane in September, said that the Bank of England’s monetary policy committee was “finely balanced” over whether to raise interest rates at its next meeting on 4 November and that it would be a “live” decision.

Earlier this week, consumer price inflation fell back slightly to 3.1% despite pressure on households from soaring petrol prices and businesses being hit by shortages of lorry drivers and materials.

However, the Bank of England had previously said it expected inflation to exceed 4% by the end of the year.

Inflation has been on the rise this year, with businesses recovering from the coronavirus pandemic, energy prices soaring, the cost of petrol hitting an eight-year high and disruptions in the global supply chain continuing to have a knock-on effect on costs.

“I would not be shocked, let’s put it that way, if we see an inflation print close to or above 5% [in the months ahead],” Pill told the Financial Times. “And that’s a very uncomfortable place for a central bank with an inflation target of 2% to be.”

Pill’s view is that there will be sharp price rises in the next few months and heading into next year, with inflation likely to drop in the second half of 2022.

Financial markets are betting on a Bank of England interest rate rise next month, the first since the pandemic began, after the governor, Andrew Bailey, said earlier this week that “we will have to act” to curb inflation.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Pill said: “Maybe there is a bit too much excitement in the focus on rates right now. The big picture is, I think, there are reasons that we don’t need the emergency settings of policy that we saw after the intensification of the pandemic. The settings [of monetary policy] that we now have are supportive settings. The need for support has diminished, as this [policy] bridge has been built and largely traversed.”

Pill was careful not to suggest that rates needed to move much higher than the pre-pandemic level of 0.75%.

“We do not see, given the transitory nature of what we are seeing in inflation in our base case, a need to go to a restrictive [policy] stance,” he said.

Contributor

Mark Sweney

The GuardianTramp

Related Content

Article image
UK interest rate rise in 2022 becoming more likely, says Bank chief
Andrew Bailey says inflationary pressures strengthen the case but ‘we are monitoring situation closely’

Phillip Inman

27, Sep, 2021 @6:30 PM

Article image
Bank of England must be wary of interest rate rise, says chief economist
Andy Haldane says UK at risk of sharp slowdown as BoE weighs up conflicting forces of inflation from weak pound and the Brexit vote denting confidence

Katie Allen

02, Dec, 2016 @2:37 PM

Article image
Bank of England rift as chief economist ponders interest rate rise
Andy Haldane reveals he seriously considered opposing governor Mark Carney in MPC vote earlier this month

Larry Elliott Economics editor

21, Jun, 2017 @11:09 AM

Article image
Bank official warns of early interest rate rise as Kraft Heinz puts up prices
Baked beans maker is latest firm to talk of food price rises, as inflationary pressures mount

Angela Monaghan and agencies

10, Oct, 2021 @3:39 PM

Article image
Inflation needs to be checked with rate increase, says MPC member
Outgoing external rate-setter says Bank of England policymakers are wrong in assessment of economic conditions

Phillip Inman

22, Jun, 2017 @9:36 PM

Article image
Raising UK interest rates ‘simply isn’t cricket’, says Bank’s chief economist
Andy Haldane deploys batting statistics to explain why he favours a delay in raising interest rates in the near future

Katie Allen

17, Oct, 2014 @5:03 PM

Article image
Bank of England pumps an extra £100bn into UK economy
Quantitative easing expanded to help Britain recover from coronavirus crisis

Larry Elliott Economics editor

18, Jun, 2020 @11:48 AM

Article image
UK inflation stays low despite rising cost of chocolate and holidays
Three-year low of 1.5% comes amid speculation that interest rates will be cut soon

Richard Partington Economics correspondent

18, Dec, 2019 @11:28 AM

Article image
Recovery likely to push inflation above 3% by end of year, says Bank
UK interest rates put on hold with post-Covid boom expected to have impact on prices in coming months

Phillip Inman

24, Jun, 2021 @4:02 PM

Article image
Bank of England governor ‘very uneasy’ about rising inflation
Prospect of pre-Christmas interest rates rise looms larger after Andrew Bailey comments

Larry Elliott Economics editor

15, Nov, 2021 @6:28 PM