3 per cent this year before it begins to retreat in 2022. However, Haldane points out that prices are already experiencing an upward pressure from rising energy costs. This may be further amplified by the bottlenecks in the supply of labour, since wages and inflation playing a “game of leapfrog”, as worker demand higher pay to fill in staffing gaps, he added.
“There’s a rising risk that won’t be the peak and we could see greater persistence and a higher level of that peak,” Haldane told MoneyWeek magazine. “Next year could see price pressures building, not abating.” Accordingly, if the BoE opts for sharper rise in the base interest rate than expected from its all-time low rate of 0.1 per cent in order to cool inflation, it would help savers, Haldane noted. However, it could lead to a “nasty surprise”, making life harder for those who borrow to invest money or buy property.
According to the central bank’s chief economist, the quicker-than-expected economic recovery, along with bottlenecks in the supply of goods and labour on account of Brexit and the pandemic, have boosted increasing price pressure. He noted that the economy which had lost ground is now back roughly to pre-pandemic levels. “Brexit added something to that and COVID has added an additional amplifier with countries seeing the case for building greater resilience into their domestic supply chains off the back of international supply chains having in some cases fractured,” he added.
