Huw Pill, the Bank of England’s chief economist, said on Friday that it was “crucial” to ensure that the UK avoids stoking an “inflationary psychology” and indicated he supported further interest rate rises.

With inflation having reached a 40-year high in April, Pill said that prices rising at more than four times the central bank’s 2 per cent target was “obviously a very uncomfortable situation” and pledged to bring inflation down.

But he said that the BoE was still grappling with the difficult question of how much inflation would fall on its own as household finances were hit hard by the cost of living crisis and how much additional pain was necessary through higher interest rates.

One of the key determinants of how much interest rates would have to rise, Pill said, was whether companies felt they could raise prices without much consequence and whether people thought they could demand higher wages without a fear of losing their jobs.

“The UK labour market is tight, wages are growing at stronger rates than would normally be deemed consistent with the inflation target, and business confidence is resilient, in part in anticipation of being able to re-establish profit margins. In short, inflationary momentum in the UK is currently strong,” Pill said.

He added that this momentum behind rapid price rises was amplified by Brexit reducing the supply of workers, a retreat of globalisation and lasting effects of Covid-19, which caused almost 500,000 people to leave the UK labour market.

“Avoiding any drift towards the embedding of such ‘inflationary psychology’ into the price setting process is crucial,” Pill said.

He predicted that further interest rate rises, on top of the four already delivered, would be needed. This would increase rates from the current 1 per cent level and, by discouraging spending, would help bring inflation down.

“It is the need for a continuation of this transition in monetary policy that led me to support the 25bp hike in Bank Rate at the May MPC meeting,” Pill said. “And, even after this hike, I still view that necessary transition as incomplete. Further work needs to be done.”

Pill is not seen as one of the most aggressive members of the Monetary Policy Committee and voted for a quarter point interest rate increase this month, unlike three of the nine members who favoured a half point increase.

He attributed his caution to the coming “substantial squeeze in UK residents’ real incomes, which will weigh on future demand and employment”.

But while Pill said he did not want rapid interest rate rises, he was clear that there would need to be more increases to ensure that high rates of inflation did not come to be seen as normal in the UK.

“It is that commitment that has led me to support a tightening of monetary policy since I joined the Committee last September, and to signal today that this tightening still has further to run,” he said.