LONDON, June 23: Britain must ensure rising inflation does not feed into wages but a slowing economy should help cool price pressures over the next year, Bank of England policy hawk Andrew Sentance said on Monday.

Markets scaled back rate hike bets after the comments from Sentance -- regarded as one of the most hawkish members of the Monetary Policy Committee -- suggested the central bank is in no rush to embark on a run of rate rises.

The central bank has said inflation could spike over 4 per cent as commodity prices rise, encouraging investors to bet that interest rates are set to rise. But many economists argue rates will eventually need to fall as the economy weakens.

Sentance said a weaker housing market and tougher conditions in the banking sector were adding to “economic uncertainties.

These factors should lead to much slower economic growth and a weaker labour market over the next year or so -- helping to offset the upward pressure we are seeing on inflation, he wrote in the Daily Mail newspaper.

Though we face upwards pressure from rising energy and food prices, the MPC is firmly committed to bringing inflation back to the 2 per cent target over a reasonable time frame, Sentance said.

To achieve that, we will need to ensure that the rise in inflation injected by rising oil and commodity prices does not become broad-based.

That requires that wage and price increases more generally do not pick up in response to a temporary episode of rising headline inflation.

So far this year, however, Sentance said there has been little evidence that inflation has affected wage deals.

Pay settlements have been steady at around 3 per cent or 4 per cent since the early part of this decade, even though measures of inflation have fluctuated much more than this, he said.

Official figures last week showed inflation rose to 3.3 per cent in May, the highest since the Labour government came to power in 1997 and the public’s perception of inflation is at record highs, raising fears that wage demands will spike higher.

Sentance’s warning on wages echoed finance minister Alistair Darling, who called on Sunday for pay awards to be kept in check to ensure they did not add to inflationary pressure.

It’s important that we don’t allow inflation to become entrenched here at home, Darling told BBC television. Pay awards in both the private and public sector have to be consistent with our inflation target, which is 2.0 per cent.

The Labour government, which is well behind the opposition Conservatives in opinion polls, is in dispute with hundreds of thousands of public sector workers over pay because of its policy of pegging deals to the 2 per cent inflation target.

Nearly a million local government workers are poised to take industrial action over pay in the coming months, with the results of their strike ballot due later on Monday.—Reuters

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