Inflation remains worry for Bank of England

In a foreword to the Bank’s quarterly bulletin, Mr Dale said long-term inflation expectations appear stable but the latest research is less clear on whether shorter-term measures are still consistent with the Bank’s two per cent inflation target.

“Because inflation expectations cannot be observed directly and there are significant uncertainties surrounding the different indicators used, this risk can be assessed only imperfectly and it remains a key area of concern,” said Mr Dale.

Inflation is now at a two-and-a-half year high of 4.5 per cent, and Mr Dale’s comments and the research conclusions are broadly in line with the views expressed in the minutes to May’s Monetary Policy Committee meeting.

Mr Dale himself has regularly voted for an end to the Bank’s record low interest rates since February, though it will not be clear until later this month whether he also voted this way at last week’s MPC meeting.

The Bank’s research showed that some of the rise in household inflation expectations in a Barclays survey could not be explained by other economic variables such as GDP or current inflation – suggesting another factor, like a loss of confidence in the Bank, could potentially be to blame.

Financial market measures of short-term inflation expectations have also reacted more to volatility in monthly inflation data, suggesting investors are less sure that the Bank will be able to quickly tame price volatility.

Separately, the Bank’s executive director for financial stability, Andy Haldane, promised not to stifle economic growth with its new regulatory regime.

In a newspaper interview, Mr Haldane said the Bank’s new Financial Policy Committee would take a “symmetric” approach to its job and would be willing to “apply the accelerator as well as the brakes”.