The Bank of England has admitted that it got its call on inflation woefully wrong at the turn of the year and should have reacted faster in tightening monetary policy as the country began to emerge from the Pandemic.

It was natural to assume that a spike in inflation would happen as demand hugely outstripped supply, but it was expected that this would level out as supply chains became untangled.

Catherine Mann, one of the independent members of the Monetary Policy Committee, spoke yesterday of her fear that inflation is becoming embedded in the economy as rising inflation is causing wage claims to increase, which in turn creates further price increases as real incomes deteriorate.

Mann is particularly concerned about the effect on Sterling should the Bank fail to keep pace with the rate increases that are taking place in other G7 economies. Were the currency to come under pressure, that would add another factor to rising inflation.

In order to avoid a rise in what she terms, domestic inflation, Mann favours a fifty basis-point increase in short term interest rates at the next MPC meeting.

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