The decision taken by the MPC last month, in response to the May inflation data, has brought the prospect of a recession close according to a renowned investment manager in the City.

The fact that the Bank was forced to change tack on its cycle of interest rate hikes after so long shows that it is far from being on top of the problem.

The data releases for May and the current level of inflation have led Schroders Investment Managers to believe that the base rate will reach 6.5% later in the year. It is probable that a further fifty-point hike will be agreed in August before the Bank feels comfortable returning to two twenty-five-point hikes later in the year.

Megan Greene, who joins the MPC this week, spoke in an article published yesterday by the Financial Times of her view that Central Banks would do well to be cautious about expecting inflation and therefore interest rates would settle back down to their now long-established level.

There are too many imponderables within the global economy currently to be certain that “normal service will be resumed.”

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