Inflation hits 9.1% as the Bank of England’s chief economist warns it is the ‘biggest poison for the economy’ and Britain must prepare for more rate hikes
The chief economist of the Bank of England has told Britain to be ready for more interest rate hikes, amid a warning that inflation is the ‘biggest poison for the economy’.
Official data published today showed inflation at a 40-year high of 9.1 percent.
Hu Pill, who took over from Andy Haldane last year, said raising rates over the next few months would be necessary as the bank tries to contain large-scale inflation.
Inflation threat: Bank of England chief economist Who Pill took over from Andy Haldane last year
Pill cautioned against raising rates to boost the pound, arguing it could ‘distract’ the bank from its ultimate objective of containing the cost of living crisis.
It came a day after Katherine Mann, an aide to the bank’s rate-setting Monetary Policy Committee (MPC), argued that officials should try to boost sterling.
He said the weakness in the currency is driving up inflation by making the cost of imports more expensive.
But Pill said he was “worried” about getting caught up in the idea that the bank could use a “very blunt tool” of monetary policy to do a lot of things.
Speaking at an event organized by the Institute of Chartered Accountants (ICAEW) in England and Wales, he said: ‘It can distract us from the work we are given to do, and ultimately mean that we achieve. They are very less effective in doing that.
‘Monetary policy is not a panacea, monetary policy is not a tool that allows you to achieve a lot of different things in the short term – stabilizing the exchange rate, moderate growth in employment or activity.’
His remarks came as Deutsche Bank owner Christian Sewing urged central banks and governments to tackle the steep rise in the cost of living.
“I would say inflation is the one thing that really worries me the most,” he told CNBC. ‘We need to fight inflation because in the end, inflation is the biggest poison for the economy which needs to be fought and hence, my focus is on that in particular.’
Deutsche’s Wall Street rival Goldman Sachs also issued a gloomy outlook, saying it now sees a 30 percent chance of the US heading into recession next year.
This was well above its previous forecast of 15 percent, and comes after the US Federal Reserve last week launched its biggest rate hike since 1994.
A slowdown in the world’s largest economy would spell trouble for countries like Britain, as export demand would fall and Britain’s lucrative financial sector could lose trade.
Central banks have been forced to tighten interest rates, as it generally brings down prices by encouraging households and businesses to save rather than spend.
But it also carries the risk of reversing economic growth.
After speaking at the ICAEW event, Pill was asked by accountants across the country whether further rate hikes were the right move.
Some are concerned that the bank will be doing little to mitigate the inflation crisis, due to factors such as rising oil prices and supply-chain chaos that are beyond the control of policy-makers.
But Pill said the bank must act to prevent inflation from being ’embedded’, meaning it would need to hike rates to prevent employees from demanding higher wages as prices rocket.