Bank of England vows to act ‘forcefully’ to prevent lasting inflation

theguardian.com:

The Bank of England will “do whatever is necessary” to prevent the rocketing cost of living from becoming a lasting inflation problem, one of its deputy governors has pledged, in a clear hint that more interest rate rises are on the way.

Jon Cunliffe insisted the central bank would act “forcefully” to ensure that higher inflation resulting from domestic pressures and soaring prices of imported energy and food do not become “the new normal” for the British economy.

“It’s our job to make sure that as this inflationary shock passes through the economy we don’t find that leaves us with inflation being the new normal, the sort of embedded psychology,” he told BBC Radio 4’s Today programme.

He added that the Bank’s rate-setting monetary policy committee would take steps to tackle rising inflation. “People can have confidence that we will act to make sure that that doesn’t happen,” he said.

Britain’s main inflation rate rose to a 40-year high of 9.1% in May but the Bank expects it to climb further, reaching 11% in the autumn.

The Bank’s target rate for inflation is 2%, and in response to soaring prices it has raised interest rates five times since December.

On Tuesday, Cunliffe argued that British households would be able to cope with interest rates as high as 5% without defaulting on their debts.

He made the claim as the Bank released its latest financial stability report, which said that most UK consumers and businesses entered the current financial crisis with relatively low debt levels, although it expects them to become more stretched over the coming months as weaker growth and higher prices bite.

In his BBC interview on Wednesday, the bank deputy governor said rising inflation was already changing consumer behaviour. Cunliffe