Prepare for higher interest rates, warns Bank of England rate regulator
Mr Saunders’ intervention comes after Bank of England chief economist Huw Pill also expressed fears about a “more lasting” inflation threat for the UK. He said that “the balance of risks is currently shifting towards major concerns about the outlook for inflation.”
The price pain comes as households face higher bills from next April due to the government’s £ 36bn tax raid on national insurance, the tax hike housing and frozen income tax brackets putting more people in the net. The costs threaten to burn a war chest of £ 200 billion in savings built up by consumers during Covid.
Philip Shaw, chief economist at Investec, said: “If you have another utility price hike in April besides October, the main thing that’s going to happen is it’s going to erode real household income. You are going to see consumer spending slow down and that will slow down the dynamics of the economy.
“What you should also try to do is figure out what the effect is on consumer spending and that may well offset your fears about short-term inflation. Weak demand, all other things being equal, will lower your inflation expectations over the medium term.
Interview with Michael Saunders: “The only way to maintain higher pay is productivity”
Michael Saunders is on his bike. The Bank of England rate fixer, from the fuel desert of the south-east London suburbs, has been forced to take two wheels to get around as shortages persist and his car contains only a few drops of gasoline.
“I don’t see the point of going around the gas stations at the moment because as far as I know none of them have one and if they do, there is a queue of a kilometer, ”he said.
Oddly enough, the economist began studying the subject as a teenager against the backdrop of the fuel shortages of the 1970s and rising inflation – in addition to change – though he is hesitant to draw comparisons to this. dark decade in another era of independent central banks.
For Saunders, who has served on the Monetary Policy Committee since 2016, the most worrying aspect of the current crisis is not so much specific shortages such as truck drivers, but rather a general shortage of workers across the country. the economy that threatens to fuel rising wages.
This position has put him in the minority of the MPC which calls for the withdrawal of the huge monetary stimulus injected into the economy since Covid. Deputy Governor Sir Dave Ramsden joined his corner last month. Their call comes as the Bank braces for inflation of over 4% in the months to come.