LONDON (Reuters) -Bank of England Deputy Governor Jon Cunliffe said the British central bank will do “whatever is necessary” to prevent the recent surge in inflation from becoming embedded in the economy. Britain’s main inflation rate hit a 40-year high of 9.1% in May and the BoE has forecast it will top 11% in October. […]
LONDON (Reuters) -Bank of England Deputy Governor Jon Cunliffe said the British central bank will do “whatever is necessary” to prevent the recent surge in inflation from becoming embedded in the economy.
Britain’s main inflation rate hit a 40-year high of 9.1% in May and the BoE has forecast it will top 11% in October.
It has raised interest rates five times since December and said last month that it would act “forcefully” if it saw signs of inflationary pressures becoming more persistent.
“We will do whatever is necessary to ensure that as this period of inflation goes through the economy, it does not leave us with a persistent domestically generated inflation problem,” Cunliffe told BBC radio in an interview broadcast on Wednesday.
“We will act to make sure that doesn’t happen.”
Many investors expect the BoE will raise rates by a bigger-than-usual half a percentage point on Aug. 4, its next scheduled monetary policy announcement date.
However, the BoE must also contend with signs that Britain’s economy is slowing, something Cunliffe acknowledged in his interview with the BBC.
“What we expect is that the cost-of-living squeeze will actually hit people’s spending and that will start to cool the economy,” he said.
“We can see signs that the economy is already slowing.”
Cunliffe said most of the forces driving up inflation were coming from abroad via higher energy and food prices which have been driven up by Russia’s invasion of Ukraine, and it was vital to avoid a wage-price spiral.
“Those prices will not continue to rise forever and as that shock passes, the economic conditions in the country have to be ones that do not allow the wage price spiral to develop… and that’s where we’ll do what’s necessary,” he said.
Cunliffe voted with the majority of his Monetary Policy Committee colleagues for quarter-point increases in Bank Rate at the most recent MPC meetings.
His interview to the BBC was recorded on Tuesday before Prime Minister Boris Johnson named Nadhim Zahawi as his next finance minister, replacing Rishi Sunak who resigned.
(Writing by William Schomberg ; Editing by William James, Kim Coghill and Tomasz Janowski)
