Higher inflation throughout the year, Bank of England Governor warns
Higher inflation is set to continue for the rest of the year in the UK as the economy recovers from the Covid-19 crisis, according to the Governor of the Bank of England.
Andrew Bailey, giving his annual Mansion House speech in the City of London, said he expected the rises in inflation to be temporary, but warned that it could be a longer-term problem unless pent-up demand reduces and supply chains can keep up.
He said: "We expect that rise to continue as we go through the rest of this year, such that CPI inflation is expected to pick up further above the target, owing primarily to developments in energy and commodity prices."
The Bank of England's inflation target is 2 per cent. The most recent inflation figures were at 2.1 per cent in May following increases primarily in energy prices.
The Governor said if inflation was not to cool down, the Bank would not hesitate to introduce new measures to reduce high spending, such as increasing interest rates.
He said: "If we see those signs [of inflation not falling], we are prepared to respond with the tools of monetary policy."
Mr Bailey said inflationary pressures have come from prices returning to pre-covid levels and demand outstripping supply. He explained: "There are shortages of some products, notably semi-conductors, some agricultural commodities, and some enduser products such as fitness equipment and home and garden furniture."
He added: "It is entirely possible that we will witness temporary periods of excess demand, or what more commonly we might describe as 'bottlenecks'.”