The departing chief economist at the Bank of England (BoE), Andy Haldane has warned that the risk of high inflation coud be closer “to 4% than 3%” by then end of 2021.
Haldane said at a speech to the Institute of Government that the risk of high inflation “is rising fast.”
In May the the Consumer Price Index (CPI) inflation rose to 2.1% ahead to the central banks target of 2%, and with US inflation inflation rising to 4.2% has sparked speculation of a shift in monetary policy.
Haldane who has worked for BoE for 32-years said, “Overall, inflation expectations and monetary policy credibility feel more fragile at present than at any time since inflation-targeting was introduced in 1992.
“By the end of this year, I expect UK inflation to be nearer 4% than 3%.”
Haldane warned that the high level of inflation would “leave monetary policy needing to play catch-up to re-anchor inflation expectations,” which would drive larger or faster interest rate rises than currently expected.
Haldane added, “Even if this scenario is a risk rather than a central view, it is a risk that is rising fast and which is best managed ex-ante rather than responded to ex-post.
“If this risk were to be realised, everyone would lose, central banks with missed mandates needing to execute an economic hand-brake turn, businesses and households facing a higher cost of borrowing and living, and governments facing rising debt-servicing costs.”