MPC's new boy sounds alarm as inflation rockets

Ben Broadbent, the new boy on the Bank's of England's monetary policy committee, today warned over the potential impact of surging commodity prices on the cost of living, amid more disappointing news on inflation.

He said price spikes could have "persistent effects on domestic inflation" if soaring costs fed through to higher wage demands from squeezed workers.

His comments to the Treasury Select Committee came as figures revealed a surprise jump in the cost of living from 4% to 4.5% in April.

The Goldman Sachs economist is taking over from über-hawk Andrew Sentance, who has voted for rate hikes over the past year and steps down from the MPC at the end of the month. Broadbent was also seen a potential hawk on his appointment, but he flagged up the risks to the economy from a sudden surge in saving damping consumer spending, as well as lingering risks in the banking sector.

Barclays Capital chief economist Simon Hayes said: "In our view, his testimony appeared to downplay the need for immediate policy tightening."

The Bank insists inflation will gradually decrease towards its 2% target next year as commodity costs ease and the impact of January's VAT hike to 20% falls out of the figures, but an early move on rates could jeopardise a recovery.

Lloyds Bank Corporate Markets economist David Page said the Bank had "a difficult balancing act to accomplish" while business leaders urged it to hold off on interest rate rises despite the inflation spike, as the Government embarks on the toughest year of its deficit-busting programme.

British Chambers of Commerce economist David Kern said: "The MPC must proceed with great caution and avoid any actions that may threaten what is still a fragile recovery.

"The Government's tough austerity measures are putting considerable pressure on businesses and individuals, and a premature interest rate increase could derail the recovery."