The chief economist at the Bank of England has indicated the central bank might raise interest rates in May, saying it needs to "see the job through".
Speaking at an event in Geneva, Huw Pill said the focus remains on ensuring enough monetary tightening is delivered to return inflation to target.
“Those of us on the monetary policy committee 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.”
He said although headline inflation is set to fall significantly over the course of the year due to base effects and energy price falls, caution is still needed due to the “potential persistence” of domestically-generated inflation.
The central bank raised interest rates in the UK last month after inflation unexpectedly accelerated to 10.4 per cent.
The rate of inflation had increased from January’s figure of 10.1 per cent, and rose above the 9.9 per cent forecasted by the Bank of England and economists polled by Reuters.
There is concern that the swift rise in rates will cause more trouble in the banking sector.
The collapse of Silicon Valley Bank, and resulting “shotgun marriage” of UBS and Credit Suisse, to save the latter from also collapsing, have all been blamed on the speed of interest rate rises in the US.
In their most recent meeting, the MPC noted that there have been "large and volatile" moves in global financial markets since the collapse of SVB, reflecting market concerns about the possible broader impact of these events.
However, the BoE's financial policy committee, which has briefed the MPC, said the UK banking system maintains robust capital and strong liquidity positions.
"The FPC’s assessment is that the UK banking system remains resilient."
sally.hickey@ft.com
