More interest rates rises needed to tame inflation, warns ex Bank of England policy-maker

Families are struggling to put food on the table as a surprise rise in inflation causes prices to rocket, as ITV News Business and Economics Editor Joel Hills reports.

An economic advisor to the government and former member of the Bank of England’s Monetary Policy Committee says interest rates need to rise further to bring inflation under control.

Sushil Wadhwani told ITV News there is a “whole set of evidence” suggesting that companies are raising their prices and their rates of pay in a way that will make it difficult for the Bank to sustainably reduce the headline annual rate of inflation to its 2% target.

”I would be raising rates by 25 basis points tomorrow (Thursday),” Mr Wadhwani told ITV News.

'The Bank will have to work considerably harder than it currently thinks,' Sushil Wadhwani said

Bank Rate stands at 4% currently. Markets are betting the Bank will increase it to 4.25% on Thursday and that it will peak at 4.5% in the summer. Mr Wadhwani warns inflation is likely to prove more persistent.

“Obviously, there is more uncertainty because of banking sector difficulties in the United States,” he said.

“But if that settles down then it’s not implausible that the Bank [of England] will ultimately have to take rates to about 5%.”

Mr Wadhwani added: “I would be almost equally confident that they will pause before [reaching 5%] but that the pause will turn out to be premature.”

This morning the ONS reported that the official rate of inflation had jumped unexpectedly to 10.4% in February - higher than the 9.9% forecast by the Bank of England and economists polled by Reuters.

In a statement, the chancellor said “falling inflation isn’t inevitable. We need to stick to our plan to halve it this year.”

Jeremy Hunt leaves 11 Downing Street with his ministerial box before delivering his Budget at the Houses of Parliament. Credit: PA

The chancellor’s statement also reminded us that the fall in living standards the UK is currently experiencing would be considerably worse were it not for the extraordinary level of taxpayer support that has been made available.

The Treasury estimates the annual income of the typical household will be subsided by £3,300 in the coming year.

In recent months, the international market prices of gas, electricity and oil and a range agricultural commodities like wheat, maize and barley have eased. International shipping costs have also fallen significantly.

Collectively, these things will slow the pace at which consumer prices rise.

The Bank of England and most economists expect the headline rate inflation to fall sharply in the months ahead and to have fallen slightly below 4% by the end of this year.

“The problem is it’s not good enough if inflation is at 4% in 2024,” says Mr Wadhwani.

“The inflation target is 2%. On the basis of the information that we have, I believe it is unlikely we will get back to 2% in either 2024 or early 2025."

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