Recession is now inevitable after the Bank of England failed to keep control of inflation, former interest rate setters have claimed.
The Bank of England could be forced to hike the rate to as high as 6.5 per cent in an attempt to combat persistently high levels of inflation.
Such a move could ensure the UK economy joins the Eurozone in a recession.
Official inflation figures showed prices stood at 8.7 per cent in the year to May.
The figure was the same in April and was well higher than the Bank’s expectations of 8.3 per cent.
The Bank of England is expected to raise interest rates for a thirteenth consecutive time on Thursday to combat price rises.
The rate will likely soar from 4.5 per cent to 4.75 per cent.
Adam Posen, who served on the Bank’s Monetary Policy Committee (MPC) in the wake of the financial crisis, said “policy errors” and Britain’s shrinking workforce had left Bank officials “wishfully talking about inflation declines”.
Bank of England
He told The Telegraph: “The UK policy regime has lost some credibility.”
Posen claimed a recession was “inevitable” and warned “inflation will not come back sustainably to target”.
Karen Ward, an executive at JP Morgan Asset Management, has also warned that the Bank of England has to “create a recession” to control inflation.
Sushil Wadhwani, another former Bank rate setter, even claimed “it might take rates at six per cent” to deal with an embedded inflation problem.
The Government has defended its stance on curbing inflation, with Chancellor Jeremy Hunt saying: “We won’t be pushed off course.”
Rishi Sunak also vowed to “take the difficult and responsible decisions to halve inflation this year.
However, homeowners are facing the brunt of the hit with the mortgage rates exceeding six per cent.
The average rate for a two-year fixed-rate mortgage stands at 6.01 per cent, financial information service Moneyfacts has claimed.
More than 400,000 people will see their existing fixed deals end between July and September.
Mortgages previously soared to 6.65 per cent after Liz Truss delivered her mini-budget during her short period as Prime Minister.
Chancellor Jeremy Hunt will meet with bank chiefs on Friday to discuss the mortgage crisis.