Bank of England chief economist warns inflation could top 5%

Inflation could top 5% in the months ahead, the Bank of England’s new chief economist has warned.

The remarks by Huw Pill in an interview with the Financial Times are likely to be seized upon as the latest evidence of Britain’s cost-of-living crisis.

Mr Pill also told the FT that the Bank would face a “live” decision on whether to raise interest rates at its rate-setting meeting next month though he declined to say which way he would cast his vote.

Image: Huw Pill said the Bank faced a ‘live’ decision on interest rates

That follows recent remarks by Mr Pill’s boss, BoE governor Andrew Bailey, that the Bank may “have to act” over inflation – comments which prompted markets to price in a 90% chance of a rate hike in November.

The Bank rate is currently at the historic low of 0.1% after being slashed in the early stages of the coronavirus crisis.

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Inflation has turned higher in recent months as supply chains struggle to keep up with the resumption of demand following pandemic lockdowns.

Though latest official figures showed the rate of price increases slipping back slightly to 3.1% in September, underlying pressures – also including labour shortages and spiking energy prices – look set to persist.

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The Bank of England has previously said that it expects the CPI measure of inflation to climb above 4% by the end of the year.

Mr Pill told the FT: “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].”

Image: BoE governor Andrew Bailey has said it may ‘have to act’

He said it was a “very uncomfortable place” for a central bank with an inflation target of 2% – despite his view that inflation was likely to come down again in the second half of next year.

However he urged caution over the exact timing of a rate hike – traditionally seen as a tool for central bankers to try to tame inflation – telling the FT that “maybe there’s a bit too much excitement in the focus on rates right now”.

Mr Pill’s latest remarks come after he warned recently that the “magnitude and duration” of the recent upturn in inflation was proving greater than expected.