A senior Bank of England official has warned that the recent surge in inflation could prove more enduring than anticipated, placing monetary policymakers in an "uncomfortable place".
Megan Greene, a member of the Bank's Monetary Policy Committee (MPC), which sets interest rates, expressed her concerns during a speech at the National Institute of Economic and Social Research (Niesr).
She cautioned that inflation remaining stubbornly high, around 3.5 per cent for the remainder of the year, risks perpetuating wage and price increases across the UK.
“I worry about the near-term profile for inflation this year, which in my view now resembles more of a ‘plateau’ than a ‘hump’,” she said.
Food prices have "surprised consistently to the upside", she said, warning that the Israel-Iran conflict could further push up inflation by putting pressure on oil prices.
Ms Greene said underlying activity in the economy was also “weak” and raised concerns that the consumer spending would remain under pressure as many borrowers roll off fixed rates onto deals with higher rates, while the jobs market was cooling.
She said: “I continue to think the risks remain two-sided but skewed to the downside on growth and to the upside on inflation.
“This is an uncomfortable place to be for a central banker.”
Ms Greene was one of a majority of MPC members who voted last week to keep rates on hold at 4.25 per cent.
In a split vote, six members opted to hold and three preferred to cut.
Ms Greene echoed comments at the time of the decision, saying in her speech that given wider uncertainty and the escalating Middle East conflict, “a careful and gradual approach to removing monetary policy restrictiveness continues to be warranted”.
The Bank was seen at the time of last week’s decision to be leaving the door open to a cut in August, when it will have its next set of quarterly forecasts to hand.
Ms Greene said: “On the global front, there are a number of key events playing out between now and our next meeting, including the deadline for the pause on so-called ‘reciprocal tariffs’ from the US, the potential passage of a budget in the US and the unfolding of events in the Middle East.
“It’s unlikely that the uncertainty from these events – and subsequent developments – will be resolved any time soon.”
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