(Alliance News) - Interest rate setters must "see the job through" on bringing high inflation back to target, the Bank of England's top economist said on Thursday.
Speaking at a research conference in Cape Town organised by the South African Reserve Bank, the UK central bank's chief economist Huw Pill said that, while there was the risk of raising rates too far and hurting growth and jobs, it was vital to ensure a "lasting return to target".
The Bank of England has increased UK interest rates for 14 times in a row, to 5.25%, and is widely expected to vote for another hike at its next decision on September 21.
UK inflation has slowed to 6.8% from a recent eye-watering peak of 11.1% last October, but is still far above the bank's 2% target.
"The key element is that we on the [Monetary Policy Committee] need to see the job through and ensure a lasting and sustainable return of inflation to the 2% target," Pill said.
There is a risk that interest rates are increased too high, however, he said.
"Now that policy is in restrictive territory, there is the possibility of doing too much and inflicting unnecessary damage on employment and growth," Pill said, adding: "At present, the emphasis is still on ensuring that we are – in the words of the MPC's last statement – sufficiently restrictive for sufficiently long to ensure that we have that lasting return to target."
While inflation has fallen back sharply in recent months, so-called core inflation has remained "stubbornly high", Pill said.
There is still significant pressure on the BoE to continue with recent interest rate hikes to drag inflation firmly lower.
Experts at the Institute for Public Policy Research think tank warned earlier this month that there was "very real risk" the UK could fall into a recession as the flurry of rate hikes weighs on the housing market and consumer and business spending.
The BoE has forecast that inflation will fall to around 4.9% in the last three months of the year.
However, surging salaries are leading to fears that inflation will prove harder to rein in, with official data showing that wages grew at a record pace over the three months to June.
Regular pay growth, which excludes bonuses, reached 7.8% compared with a year earlier, according to the Office for National Statistics.
Nevertheless, wages were still 0.6% lower once inflation for the period was taken into account.
By Holly Williams, PA Business Editor
source: PA
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