Bank of England policy maker Michael Saunders, who called in vain for a bigger rise in interest rates last week, said inflation was at risk of outpacing BoE forecasts, which are already above 10%, and urged the bank to “lean heavily” against it.
With price growth already triple the BoE’s 2% target, Saunders and two other Monetary Policy Committee members voted to raise the bank rate from 0.75% to 1.25% last week.
But a majority of six members backed a less than 1% increase because they are concerned about signs of an economic slowdown.
In a speech, Saunders said he placed considerable weight on the risk that inflation pressures are higher and more persistent than expected by the BoE and that the central bank should “lean heavily” against high inflation expectations because the process of re-anchoring price expectations could be very costly.
Key indicators of long-term price growth expectations are uncomfortably high and are fueling underlying wage growth and services inflation.
“The strength of external costs is eroding real income and is likely to limit real spending,” Saunders said.