The Scotsman

Further, warns

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inflation caused by the weak pound rise in interest rates for a decade in November, when the Bank’s next decision and latest set of forecasts are due.

In a hearing before the Treasury select committee, he also stressed the importance of avoiding a so-called hard Brexit, without a transition agreement.

He said: “There’s a very limited accordingl­y. Consumers may think they have got it rough dealing with inflation of 3 per cent but manufactur­ers have been reporting rises in their input costs of as high as 10 per cent earlier in the year.

But now it’s consumers’ turn to pay the higher price. That cost will be harder to bear as wage rises have remained stubbornly low. Falling unemployme­nt is supposed to deliver greater competitio­n for workers and higher pay. Yet there’s been amount of time between now and the end of March 2019 to transition large, complex institutio­ns and activities.

“A transition agreement is in everyone’s interests.”

But he said the Bank was preparing for the possibilit­y of a hard Brexit without a transition period. little evidence of staff striking a harder bargain.

Consumers have started to cut back their spending in response to rising prices. For the most part the changes are gradual, such as the slowing of retail sales and cooling credit card borrowing. Spending on new cars has probably taken the biggest hit with registrati­ons down 9 per cent. And now they might just face another call on their cash, interest rate rises.

The Bank of England signalled that it expects to raise rates in the coming months, possibly as soon as November, if the economy progresses in line with its forecast. Rising inflation fits with the MPC’S picture.

Yet the economy could still confound the committee. If the 40+ year low in unemployme­nt fails to ignite wage growth many will argue there’s no need to raise interest rates. The two newest members of the MPC said as much in their testimony to the Treasury select committee yesterday.

Many would be relieved if it took a little longer for interest rates to rise. The OECD’S report on the UK economy certainly struck that cautionary note. But the Bank of England may decide that acting early is a better course of action and a more reliable way of preventing inflation from staying so high. l Sebastian Burnside is senior economist at Royal Bank of Scotland

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