Broadbent said in a speech that the knock-on effects of the surge in prices – such as pressure on employers to push up wages, which has led to a record growth in pay – were unlikely to fade away as rapidly as they emerged.
“As such, monetary policy may well have to remain in restrictive territory for some time yet,” Broadbent said in a text of remarks he was due to make at the annual Jackson Hole Economic Policy Symposium in the US.
The BOE said earlier this month that borrowing costs were likely to stay high for some time as it raised rates for the 14th time in a row.
Hit by the impact of Brexit, the Covid-19 pandemic, and then Russia’s invasion of Ukraine, the BOE has struggled to tackle an inflation rate that peaked at 11.1% last October and which, at 6.8% in July, remains more than three times its 2% target.
Investors expect another increase in the BOE’s bank rate to 5.5% from its current level of 5.25% on Sept 21, after the next scheduled meeting of the Monetary Policy Committee.
But this week financial markets scaled back their bets on bank rate hitting a peak of 6% after a survey showed signs of a slowdown in the UK’s economy.
Broadbent said the BOE’s stance on interest rates would respond to “the evidence on spare capacity, and to indicators of domestic inflation, as and when it comes through.”
It was reasonable to expect a decline in energy and core goods prices over next few months, but “one can only be cautious” about how quickly the pressure on wages will ease off, he added.
It is not just the BOE that is worried about the risks posed by inflation.
The chair of the Federal Reserve, Jay Powell, told the Jackson Hole gathering of central bankers on Friday that the Fed may need to increase interest rates further.
Broadbent said the shocks that had buffeted the UK’s open economy, with its reliance on imports, provided a stark illustration of how a sudden contraction in the supply of imported goods could hurt incomes and turn up the pressure on domestic inflation, chiefly via wage increases.
He said it was reasonable to argue that trade had been over-concentrated – mainly Europe’s reliance on gas from Russia – and that governments had a role in addressing the problem.