A Bank of England policymaker has issued a fresh warning about inflation amid the ongoing economic uncertainty.
During a meeting in South Africa on Friday, Dave Ramsden, the bank’s deputy governor for markets and banking, said there is now more risk of inflation rising than there was before.
He said: “Given the increased uncertainty and risks to inflation on both sides … I am even more certain than I was that taking a gradual and careful approach to the withdrawal of monetary restraint is appropriate.”
While the Bank cut interest rates to 4.5% at its February meeting, the chances of further rate cuts took a knock after higher-than-expected inflation figures in the weeks since.
The core rate of inflation across the economy rose to 3% in January from 2.5% in December.
Mr Ramsden pointed to a recent employment market report, which indicated that earnings growth hit an eight-month high, with regular pay growth hitting 5.9% in the three months to December.
He said he is “less certain than I was about the outlook for the UK labour market and its implications for future inflation persistence and growth”.
The Bank aims to bring inflation back to its 2% target over the coming years, though higher wage growth could pose a challenge to this goal.
He added that inflation risks are now “two-sided, reflecting the potential for both inflationary and disinflationary scenarios.”
However, Mr Ramsden noted: “I do, though, think the core disinflationary process remains intact.”
He also left room for faster cuts, drawing an analogy to descending a mountain, saying that it “doesn’t always mean the descent has to be slow.
“There may be circumstances when a slower-than-expected descent is justified, but there will also be times when conditions require that the pace has to quicken.”
This follows a warning from Governor Andrew Bailey in early February that the UK is facing a “weak growth environment” amid the potential “global fragmentation” of the world economy.
During the last base rate announcement, Mr Bailey projected inflation would rise to 3.7% over the summer before gradually falling closer to the target by 2027.
