Interest rates could top 2% next year to tackle the surge in inflation, a Bank of England policymaker warned on Monday.
Michael Saunders, a member of the Bank’s rate-setting Monetary Policy Committee, claimed it was better to take aggressive action now than do too little, too late.
Its base rate, which influences borrowing costs across the economy, stands at 1.25% after a series of hikes.
Mr Saunders voted for an increase to 1.5% at the MPC’s meeting in June.
But he warned rises still have some way to go in order to bring inflation under control.
Figures out on Wednesday from the Office for National Statistics are expected to show inflation reached a new 40-year high of 9.2% in June.
In a speech at the Resolution Foundation think-tank, Mr Saunders warned that despite signs of a slowdown in the wider economy, the risks of not raising rates steeply and quickly outweighed those of being too cautious.
He said: “The MPC has to balance the risks and costs of tightening ‘too much, too soon’ versus ‘too little, too late’.
“In my view, the cost of the second outcome would be relatively high at present.”
He added: “Without wishing to endorse those views too strongly, I do not regard such an outcome – ie that the Bank rate will have to rise to 2% or higher during the next year – as implausible or unlikely.”
However, Mr Saunders said he believed the economy could withstand aggressive rate hikes.