The Bank of England may need to spark a recession to finally get price rises under control, an economist who advises the UK finance minister, or chancellor of the exchequer, warned as inflation proves more persistent than expected.

JP Morgan’s Karen Ward said without weakness in the economy, inflation might stick around for much longer.

“The difficulty for the Bank of England – I mean, no one envies them their job at the moment – is they have to therefore create a recession,” she said.

She said there are “certainly signs” in the economy of a so-called price-wage spiral, where companies hike prices and, as a result, workers demand pay rises, which leads to companies hiking prices again.

Speaking to BBC Radio 4’s Today programme, Ms Ward, who sits on the chancellor’s economic advisory council, said the Bank of England has to interrupt this spiral.

“They have to create uncertainty and frailty because it’s only when companies feel nervous about the future that they will think, ‘Well, maybe I won’t put through that price rise,’ or workers, when they’re a little bit less confident about their job, think ‘Oh, I won’t push my boss for that higher pay.”

“It’s that weakness in activity which eventually gets rid of inflation.”

On Wednesday, the Office for National Statistics said inflation had remained at 8.7 per cent in May, unchanged from the month before and much higher than the 8.4 per cent experts had forecast.

It will likely put more pressure on the Bank of England’s monetary policy committee, which meets on Thursday, to hike interest rates.

The news also hit markets, increasing the government’s interest rate on two-year gilts – essentially IOUs issued by the Treasury – to a fresh 15-year high of nearly 5.09 per cent. Longer-term borrowing costs also rose.

ING developed markets economist James Smith said: “It’s another month where UK inflation has come in dramatically higher than expected, and that all but guarantees another rate hike from the Bank of England tomorrow.

“When rates got this high last November, the Bank of England offered some rare pushback against market expectations and signalled a lower peak for rates.

“This time, with inflation consistently coming in hotter than expected, we suspect officials will be more reluctant to offer any firm guidance on what comes next.

“Policymakers won’t want to steer market rate expectations lower, only to find that further inflation surprises force it to go further than it would like over the coming months.”

Rob Morgan, chief investment analyst at Charles Stanley, said: “With prices showing little response to the Bank of England’s 12 successive interest rate rises, today’s figures seal a further increase in interest rates at the Monetary Policy Committee’s next meeting tomorrow from the current level of 4.5 per cent.

“An increase to 4.75 per cent is all but nailed on, but a shock-and-awe rise of 0.5 per cent to five per cent cannot be ruled out.

“The Bank of England will likely maintain tight policy for the remainder of the year, meaning further interest rate rises and no significant rate cuts until 2024.”

(dpa/NAN)