Yahoo Finance Inflation: Price rises may last until 2023, warns Bank of England governor
The governor of the Bank of England Andrew Bailey voiced “concern” that the UK’s surging inflation outlook might get worse given surging energy costs and signs that cost pressures are feeding into wage demands.
Bailey told MPs on the Treasury select committee that financial markets now do not expect energy prices to start easing back until the the second half of 2023.
He also highlighted growing wage expectations, stating that the Bank's regional agents report seeing some evidence of second-round inflation effects.
He says there is a concern that there could be "second round effects" on wages on both rising inflation and a "tight" jobs market.
Read More: What higher inflation means for savers and investors
"This a hard thing to say ... but if you get pressure on cost of living, pressure on real earnings, that will tend to restrain demand in the economy... and that could lead to an output gap opening up, and it could eventually of course lead to higher unemployment and that would bring inflation down," Bailey said.
"I don’t want to suggest that... were we to consider it necessary, we don’t have to take any action in terms of the Bank of England’s action on interest rates. We would obviously judge that ourselves. But there is another channel there which would weaken demand in the economy."
Read More: UK house prices climb 10% in November
Inflation rose faster than expected to a near 30-year high in December, intensifying a squeeze on living standards and putting pressure on the Bank of England (BoE) to raise interest rates again.
The annual rate of consumer price inflation increased to 5.4% from November’s 5.1%, the highest since March 1992, the Office for National Statistics (ONS) said. Economists polled by Reuters had expected a rise to 5.2%.
Financial markets now price in a more than 90% chance that the BoE will raise its main interest rate to 0.5% on 3 February.
