Mr Saunders’ intervention comes after the Bank of England’s chief economist Huw Pill also voiced fears over a “more long-lasting” inflation threat to the UK. He said that the “balance of risks is currently shifting towards great concerns over the inflation outlook”.
The price pain comes as households face higher bills from next April from the Government’s £36bn tax raid on national insurance, surging council tax and frozen income tax bands dragging more people into the net. The costs threaten to burn through a £200bn savings war chest built up by consumers during Covid.
Philip Shaw, chief economist at Investec, said: “If you have another hike in utility prices in April on top of October’s, the main thing that’s going to happen is that it’s going to erode household real income. You are going to see slow down consumer spending and that’s going to slow the momentum of the economy down.
“What you also have to try and do is to work out what the effect on consumer spending is and that might well counterbalance any fears you have about inflation in the short term. Low demand all else being equal will lower your inflation forecasts over the medium term.”
Michael Saunders interview: ‘Only way to sustain higher pay is productivity’
Michael Saunders is on his bike. The Bank of England rate-setter, who hails from the fuel desert that is the south-east London suburbs, has been forced onto two wheels to get around as shortages linger and his car is left with just a few drops of petrol.
“I don’t see any point in going around sort of looking at petrol stations at the moment because as far as I can tell, none of them have any and if they do, there’s a queue a mile long,” he says.
Funnily enough, the economist first began studying the subject as a teenager against the backdrop of 1970s fuel shortages and rising inflation – plus ca change – although he demurs at comparisons with that grim decade in a different era of independent central banks.
For Saunders, who has served on the Monetary Policy Committee since 2016, the most concerning aspect of the current crisis is not so much one of specific shortages such as lorry drivers, but more a general dearth of workers across the economy which threatens to feed rising wages.
That stance has put him into the minority at the MPC who are calling for withdrawal of the huge monetary stimulus pumped into the economy since Covid. Deputy Governor Sir Dave Ramsden joined his corner last month. Their call comes as the Bank braces for inflation of more than 4pc for months to come.