Inflation could take four years to return to what we want, warns top economist

The government's target of 2% inflation could take up to four years to achieve, a top economist has warned.

Office for National Statistics data published last week showed that the consumer prices index inflation (CPI) remained at 8.7% in May – the same level as in April, despite experts forecasting a fall to 8.4%.

The data is an indication that millions of households will continue to face a challenging cost-of-living squeeze for some months to come.

The Bank of England is tasked with keeping inflation as close to 2% as it can, and the best tool it has to do that when inflation is high is by raising the base interest rate.

Prime minister Rishi Sunak has pledged to halve inflation by the end of year and wants to “get back” to the target of inflation being at 2% – less than a quarter of what it stood last month.

But former Bank of England chief economist Andy Haldane has said that while the 2% target should not not be questioned, it may take a long time to get to that point.

‘Let’s take our time’

Asked on ITV's Peston show if the country should be having a debate about the target, Haldane responded: “Not now… that would spook markets that would add to uncertainty.

“What we should do is take out time to reach that target.

“In ordinary times getting there in two years is fine. When you get shocks of this type and this size you flex the framework.

“You say, ‘Lets not do it in 18 months or two years, lets’s do it in three years or four years and take our time’.”

Haldane, who was at the BoE until 2021, said that “tens or perhaps hundreds of thousands of people” would be left out of work if trying to achieve the target to fast.

Advising the BoE to hold off raising interest rates further, he added: “Let’s pause. Lets take our time…

“We know many households are struggling… I would say press the pause button, see what effect the medicine already administered is having and then see in the second half of the year.”

‘Not really a growth programme at all’

Haldane has previously been critical of Sunak’s plan to boost the economy. He told the BBC in January: “As things stand it’s not really a growth programme at all, we’re currently short that piece of the jigsaw puzzle.

“Which is, what’s the plan that’s going to boost growth over the medium term, enable pay to pick up, allow public services to be paid for and financed properly?

“We’re still missing that.”

Sunak’s pledge

The PM has insisted he feels a “deep moral responsibility” to deliver on his pledge to halve inflation, adding it is the government's “number one priority” and said the country should “hold our nerve” to allow it to happen.

Speaking to business leaders last week, he said: “I feel a deep moral responsibility to make sure the money you earn holds its value.

“That’s why our number one priority is to halve inflation this year and get back to the target of 2%.

“And I’m completely confident that if we hold our nerve, we can do so.”

Despite this, more than 80% of people in a survey by YouGov this week said Sunak was failing on two of his key targets – reducing inflation and cutting NHS waiting lists.

The poll of 2,294 Britons last week saw 82% of people say he was doing badly on reducing inflation, with 51% saying he was doing “very” badly, rather than “quite”.

Just 7% said he was doing well, and all of those said he was doing quite well rather than very.