Huw Pill, however, stressed that the Monetary Policy Committee faced a tight decision on whether to raise interest rates from 4.25 per cent, especially at a time of financial market fragility.
«On balance, the onus remains on ensuring enough monetary tightening is delivered to see the job through and sustainably return inflation to target,» he said in a speech to the Graduate Institute in Geneva.
«Nonetheless, those of us on the MPC need to remain vigilant to signs of tightening financial conditions and be prepared to respond to the macro implications of any dislocation to credit markets to the extent that they influence the outlook for inflation».
Pill stressed that he was examining most closely the danger that high inflation becomes persistent in the UK, with companies raising prices and workers demanding higher pay increases to prevent a loss of income.
There were no signs in UK data of either excess profiteering driving inflation or excess wage rises, he pointed out.
He considered the most significant risks were a buoyant labour market combined with greater corporate pricing power generating a simultaneous inflationary «push» from higher wages along with a «shove» from companies raising prices to keep profit margins.
To combat this process, higher interest rates were both a «powerful» tool to curb spending but also a «blunt» one, he added.
Pill rejected suggestions that the improved outlook for the economy since the start of the year increased inflationary pressures. Lower wholesale natural gas prices would both improve the outlook for economic performance and lower inflation risks, he said.
In a separate speech, Silvana Tenreyro, an independent MPC member, disagreed with Pill’s view that rapid price increases were now a persistent feature of the UK economy.
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