CAPE TOWN (Reuters) -The Bank of England will "see the job through" on bringing high inflation back down to its 2% target even if there is a risk that high interest rates hurt Britain's economy, BoE Chief Economist Huw Pill said on Thursday.
In a speech that sought to underscore this month's message from the BoE's Monetary Policy Committee (MPC), Pill said borrowing costs should probably stay high to quash "stubbornly high" core inflation, rather than fall quickly.
"The key element is that we on the MPC need to see the job through and ensure a lasting and sustainable return of inflation to the 2% target," Pill told a research conference organised by the South African Reserve Bank.
"At present, the emphasis is still on ensuring that we are - in the words of the MPC's last statement - sufficiently restrictive for sufficiently long to ensure that we have that lasting return to target."
The BoE raised interest rates for the 14th time in a row on Aug. 3 to 5.25% and said borrowing costs were likely to stay high for some time in order to prevent high inflation from turning into a long-term problem for Britain's economy.
Investors see an 80% chance that the BoE will raise interest rates to 5.5% next month, and expect rates to peak at 5.75% before the end of the year.
Pill said there was a risk that the increases in borrowing costs hurt Britain's economy, which some economists think is on the cusp of a recession.
"Now that policy is in restrictive territory, there is the possibility of doing too much and inflicting unnecessary damage on employment and growth," he said.
But he also said there was no room for complacency and some indicators of underlying inflation pressures had developed less benignly recently than the headline rate of inflation which has fallen from 11.1% in October to 6.8% in July.
The BoE was "thinking very closely" about the risk that the usual link between pay rises for new hires and those for workers more broadly had broken down, meaning a recent fall in increases in starting pay growth might not point to an imminent slowdown in overall earnings which recently hit record highs, he said.