Deputy governor of the Bank of England Ben Broadbent has warned that UK inflation could 'comfortably exceed' forecasts of 5 per cent by April 2022, with price rises exacerbated by Britain's tight labour market.
The BoE forecast last month that inflation could hit 5 per cent in April to June next year before falling, with CPI having reached its highest level in a decade in October.
Broadbent said in a speech on Monday that forecasts will likely be raised even further beyond the bank's 2 per cent target.
Rapidly rising inflation has built pressure on the bank to act in recent months, but it disappointed markets after the Monetary Policy Committee opted to hold rates at their current all-time-low in November.
Ben Broadbent (left): 'The aggregate rate of inflation is likely to rise further over the next few months'
The emergence of the Omicron variant of Covid-19 has also dampened expectations of a rate hike at the BoE's 16 December MPC meeting, with some analysts now expecting the Bank to hold off once again to ensure it has adequate data on the economic impact of the new strain.
Even the biggest policy hawk on the MPC Michael Saunders last week said there could be advantages in waiting for more evidence on Omicron.
While other MPC members may be happy to wait and see, Broadbent told an audience at Leeds University Business School that inflationary pressures are unlikely to soften in the short term.
He said: 'The aggregate rate of inflation is likely to rise further over the next few months and the chances are that it will comfortably exceed 5 per cent when the Ofgem (regulator) cap on retail energy prices is next adjusted, in April.
'I still think it's more likely than not - looking a couple of years ahead as we should - that these pressures on traded goods prices are more likely to subside than intensify.'
Broadbent was one of the seven members of the BoE's nine-strong MPC who voted to keep interest rates on hold last month.
Investors are now pricing less than a 50 per cent chance on the BoE raising rates from 0.1 per cent to 0.25 per cent at its next meeting.
Broadbent used his speech to stress how moves such as a changes to interest rates by a central bank could take two years to have an effect on the economy.
He explained: 'What we can do - and what is the best possible approach - is to think at every meeting about the level of interest rates that will maximise our chances, a couple of years from now, of hitting the inflation target exactly.
'That is what we will continue to do.'
https://news.google.com/__i/rss/rd/articles/CBMiemh0dHBzOi8vd3d3LnRoaXNpc21vbmV5LmNvLnVrL21vbmV5L21hcmtldHMvYXJ0aWNsZS0xMDI4MDM1OS9JbmZsYXRpb24tZXhjZWVkLTUtQXByaWwtMjAyMi1Cb2ZFLWRlcHV0eS1nb3Zlcm5vci13YXJucy5odG1s0gF-aHR0cHM6Ly93d3cudGhpc2lzbW9uZXkuY28udWsvbW9uZXkvbWFya2V0cy9hcnRpY2xlLTEwMjgwMzU5L2FtcC9JbmZsYXRpb24tZXhjZWVkLTUtQXByaWwtMjAyMi1Cb2ZFLWRlcHV0eS1nb3Zlcm5vci13YXJucy5odG1s?oc=5
2021-12-06 14:52:21Z
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