Interest rates may have to rise more quickly and further than markets think to keep inflation under control, Mark Carney and his Bank of England colleagues have indicated.
Domestic price pressures – the type which the Monetary Policy Committee tries to control – are increasing and wage growth is making a reappearance, leading the Bank to increase borrowing costs.
However there is still ground to make up as real wages are also now 3.5pc below the level the Bank forecast in May 2016, in large part because of the weaker pound.
A key risk is that the Bank will be too slow to hike rates, said chief economist Andy Haldane, leading to an economic crash in future.
“Historically the thing which has killed jobs has been central banks stepping on the brakes too late,” Mr Haldane told the Treasury Select Committee.
“As [former Federal Reserve chair] Janet Yellen says, recoveries don’t die of old age, they die because central banks step on them, because they react too late. We’re absolutely clear, we don’t want to go back there again because it is bad news for jobs.
“That means going in this limited and gradual way to head things off in advance to prevent having to step on brakes, do a handbrake turn at a later stage.”