The Bank of England’s soon-to-be deputy governor, Sarah Breeden, cautioned that controlling inflation might be more challenging, suggesting a potential need for prolonged elevated interest rates.
She indicated that the Bank’s recent inflation projections lean more towards an increase and emphasized the tangible threat of secondary impacts of inflation becoming a fixed feature in the UK’s economic landscape. This could result from employees seeking heftier wages due to higher living costs and companies upping their prices to compensate for their escalating expenses, leading to an inflationary cycle.
Recent data from the Office for National Statistics revealed a notable surge in wages over the last quarter ending in July.
While addressing the Treasury’s panel of MPs, Ms. Breeden commented, “Currently, the trend shows that wages are not only high but also climbing, and the knock-on effects may solidify this inflationary trend. We aren’t predicting a downturn, nor do we wish to induce one. The Monetary Policy Committee (MPC) will exercise caution in its decisions.”
Furthermore, she highlighted that, in comparison to pre-pandemic figures, the UK’s GDP has barely advanced, even considering the recent official statistics adjustments.
Market experts estimate a 78% likelihood of the Bank of England hiking interest rates from 5.25% to 5.5% in the upcoming week, with a 22% possibility of them remaining unchanged.
