The Bank of England could be forced to hike rates next year if inflation stays higher than expected, said a Threadneedle Street policy maker.
Michael Saunders, one of nine members of the bank’s monetary policy committee, said a hike in borrowing costs before the end of 2022 could be justified if the UK’s economic recovery continues from the lockdown and inflation stays at elevated levels.
“If the economy continues to recover and inflation shows signs of more sustained development, it might be right to think about a rate hike for the next year or so. But that’s not a promise and depends on economic conditions, ”he told an online event hosted by the accounting software company Intuit.
He signaled concern about inflationary pressures spreading through the UK economy and said the time was drawing near to withdraw high levels of emergency economic measures. However, any tariff increase would be “relatively limited”.
He added that an increase in borrowing costs over the next year was “not a promise” as it would have to depend on economic conditions.
Saunders, who voted last month to end the bank’s $ 895 billion quantitative easing program.
“Such an outcome could require more monetary policy tightening later and could limit the committee’s scope to react immediately the next time the economy needs further stimulus,” he said.
His comments come after Catherine Mann, the central bank’s newest external interest rate setter, said Inflation would prove less sticky than it was in the 1970s. Earlier this week, Mann said that companies may be more reluctant than in the past to hit households with higher prices for goods and services, and that a historical link between inflation and wages has recently declined.
Financial market expectations foresaw a rate hike in 2022 even ahead of Saunders’ statements, with most of the city’s economists expecting the central bank to curb inflationary pressures next year.
Threadneedle Street predicts inflation could soar to nearly 4% this year, the highest rate in a decade. Much of the increase, however, is due to the economy recovering from its historic 2020 slump, rather than a sharp rise in consumer prices. The bank believes that pressures related to the disruption of the pandemic will ease over time and bring inflation back towards its target rate of 2%.