Bank of England faces ‘live’ decision on rates as inflation could hit 5% in the coming months, new chief economist warns  

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  • Hu Pill says he would not be ‘surprised’ to see inflation ‘close to or above 5%’.
  • Bank to face ‘live’ decision on raising interest rates in next meeting
  • The CPI was 3.1% in September, but is set to rise sharply as energy prices rise

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The new chief economist of the Bank of England has warned that inflation could reach 5 per cent in the coming months.

Who Pill told the Financial Times That the bank would face a ‘living decision’ about raising interest rates at its next meeting in November, though he declined to say how he would vote.

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The bank had previously said inflation was likely to exceed 4 per cent – more than double its target – but has since projected that, with energy prices rising further.

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Warning: Hu Pill said he would not be ‘surprised’ to see inflation ‘close to or above 5%’.

This week’s official data shows the cost of living rose by 3.1 percent in September – slightly slower than the 3.2 percent increase in August.

But analysts warned that this was the ‘lust before the storm’, with inflation expected to rise further in the coming months as household energy bills continue to rise along with the price of food and fuel.

‘I wouldn’t be shocked – let’s put it this way – if we see the inflation print near or above 5% (in the coming months). And it’s a very uncomfortable place for a central bank with an inflation target of 2%,’ Pill told the FT.

He also said markets should watch the underlying UK economic trends, adding that they no longer need interest rates at a record low of 0.1 per cent.

“The big picture is that I think there are reasons why we don’t need the emergency settings of the policy, which we saw after the pandemic intensified,” Pill said.

According to the report, Pill suggested that rates would not need to rise much beyond their pre-pandemic level of 0.75 percent.

‘Given the transitory nature of what we are seeing in inflation in our base case, there is no need to go on a restrictive [policy] stance,’ he said.

Rising inflation: This week's official data shows the cost of living rose by 3.1% over the past month

Rising inflation: This week’s official data shows the cost of living rose by 3.1% over the past month

Inflationary pressure on prices has continued longer than the Bank had previously estimated.

Pill recently told lawmakers that the “magnitude and duration” of inflation growth was proving to be “exceeding expectation”.

It comes as the bank’s governor, Andrew Bailey, said on Sunday that the rise in inflation is still likely to prove temporary, but that the central bank will have to act to contain the risks.

Speaking to the G30 group of international economists and central bankers on Sunday, Bailey said monetary policy “has to act and do so if we see risks, especially medium-term inflation and medium-term inflation expectations”. For’.

Economists at both JPMorgan and Goldman Sachs recently said they think a November rate hike is likely.

But Danny Blanchflower, an economist and former member of the bank’s rate-setting monetary policy committee (MPC), said officials would be ‘foolish’ to raise rates so quickly – and even try to push the economy back into recession. Can also take risks.

The bank slashed rates to as low as 0.1 per cent last year to encourage spending during the covid slowdown.

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