High inflation in the U.K. has been seen as a leading factor in restraining consumer spending and business investments, pushing a leading global group to urge the central bank to act to contain price growth, according to The Daily Telegraph. The Organization for Economic Cooperation and Development has warned that the Bank of England must raise interest rates soon in order to avoid a fallout from ongoing high inflation, and the group went cut the country’s growth outlook for the next two years. Inflation is currently at 4.5%, which is more than double the BOE’s target level.
The OECD said, “Normalization of interest rates will need to start during 2011 to stave off significant increases in inflation expectations,” although the group noted that surging prices have “so far showed little sign of becoming embedded in wage settlements.” The point echoed the words of former BOE policymaker Andrew Sentance, who used his final speech as a member of the Monetary Policy Committee to warn of the risks of a “sharp correction” to policy in the future. Sentance said such a response to high inflation expectations becoming embedded “poses a threat to the recovery further down the track.”