UK inflation might “plateau” and linger this yr, somewhat than rising over a “hump” earlier than shortly falling again once more, warns Bank of England policymaker Megan Greene.
The value of residing held regular at 3.4% within the 12 months to May, based on the newest Office for National Statistics knowledge.
Monetary Policy Committee member Greene voted to depart rates of interest on maintain at 4.25% in a 6-to-3 cut up final week, with deputy governor Dave Ramsden, Swati Dhingra and Alan Taylor arguing for a 25 foundation factors lower.
“We count on inflation to renew its fall in the direction of our goal from early subsequent yr,” stated Greene at a National Institute of Economic and Social Research convention in London this morning.
“However, there’s a threat that elevated inflation of roughly 3.5% the remainder of this yr will feed by into inflation expectations, and subsequently wage and value setting behaviour.”
Greene outlined how excessive inflation prices might stop rate-setters from slicing charges twice extra this yr as merchants count on.
She stated: “Aside from power and controlled costs buoying inflation, meals costs have shocked constantly to the upside.
“Energy and meals costs are significantly salient for inflation expectation setting. Household inflation expectations have been rising for months and are on the higher finish of the band we would count on given shopper costs.
“Business expectations are additionally elevated however are much less out-of-line with the previous. I feel the danger that our near-term plateau in inflation feeds by into second-round results is skewed to the upside.”
Greene, one of many extra hawkish rate-setters, added that she presently noticed the stability of dangers “skewed to the draw back on progress and to the upside on inflation”,
“This is an uncomfortable place to be for a central banker,” she added.
