Bank of England's chief economist Andy Haldane has raised a warning over UK inflation risk. As the US inflation reached 4.2 per cent, its highest since 2008, Haldane said the UK's own rate of price rises was increasingly likely to follow. He said rising energy costs were already putting upward pressure on prices and that bottlenecks in the labour supply were likely to add to that, with wages and inflation playing a “game of leapfrog”.
The Bank views that inflation will hit three per cent this year before retreating in 2022. However, Haldane dismissed the likelihood and said, “There's a rising risk that won't be the peak and we could see greater persistence and a higher level of that peak. Next year could see price pressures building, not abating.”
He added that the result could be a “nasty surprise” if the Bank opts for a sharper-than-expected rise in the base interest rate. This could help those who save, but make things difficult for people and businesses borrowing to invest money or buy property.
“Brexit added something to that and Covid has added an additional amplifier with countries seeing the case for building greater resilience into their domestic supply chains off the back of international supply chains having in some cases fractured,” Haldane said.
