Andrew Bailey has admitted that the Bank of England is struggling to keep a lid on inflation.
Addressing business leaders at the British Chambers of Commerce Global Annual Conference in London, the Bank governor signalled that the UK faces a longer crisis than expected in battle to tame inflation.
It comes as data released on Tuesday showed that private-sector wages grew by 7% in the three months to March, far higher than is consistent with the Bank’s 2% inflation target.
“Some of the strength in core inflation reflects the indirect effects of higher energy prices, Mr Bailey said.
"But it also reflects second-round effects as the external shocks we have seen interact with the state of the domestic economy.”
His warning also suggests that inflation could take much longer to fall than initially expected, meaning interest rates would have to stay higher for longer.
Inflation outlook
Mr Bailey said: “While we expect CPI inflation to fall quite sharply as energy costs begin to ease, albeit at a somewhat slower pace than projected in February given the near-term outlook for food prices, the outlook for inflation further out is more uncertain and depends on the extent of persistence in wage and price setting.”
He said that, while there were signs of the labour market starting to loosen, it was happening more slowly than the Bank had predicted a few months ago.
The Bank has already raised interest rates 12 times to 4.5%. Mr Bailey said policymakers would have to lift borrowing costs further “if there were to be evidence of more persistent pressures”.
He added that “near-term indicators suggest that pay growth could ease further later this year”.