During a speech on monetary policy due to be delivered in New York, Huw Pill is expected to say that Britain is probably in a recession.
As a senior official influential in the Bank of England’s decisions over interest rates, he also confirms that the Monetary Policy Committee would be prepared to act “forcefully” if the outlook suggests more persistent inflation.
In the same speech, he will say that higher natural gas prices, a tight labour market and global supply bottlenecks create “the potential for inflation to prove more persistent”.
“It is therefore in this nexus that I focus in coming to my own assessment of the risks surrounding inflation persistence, which … will strongly influence my monetary policy position in the coming months,” he says.
The remarks suggest that Mr Pill would support another interest rate rise at the next committee meeting to put a lid on inflation.
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The base rate of interest is currently 3.5 per cent, the highest rate since October 2008, with the committee voting to increase the rate at each of its past nine meetings.
Mr Pill confirms in his remarks bringing down inflation to its 2 per cent target was the key driving force for the bank’s monetary policy decisions.
But, even if natural gas prices stabilise or fall back down, inflation could remain high because households and businesses will still try to protect their incomes against higher energy bills, Mr Pill is expected to say.
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“In an attempt to protect their own real income from the unavoidable impact of higher external prices, the longer that firms try to maintain real profit margins and employees try to maintain real wages at pre-energy price shock levels, the more likely it is that domestically generated inflation will achieve its own self-sustaining momentum, even as the external impulse to UK inflation recedes,” he explains.
It echoes similar recent remarks from the bank’s governor, Andrew Bailey, who said that while workers will want to seek pay rises as living costs soar, it could have the adverse effect of “locking in” high inflation in the UK.
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He concludes that both indicators will have to be watched closely by the bank.