The Bank of England has repetitively got inflation and growth forecasts wrong – usually acting as a mouthpiece to the government in making predictions that are woefully short of reality. At The Economic Times, we were forecasting double-digit inflation before the BoE were halfway there. We’ve warned of a recession and the awful potential for stagflation in the months ahead. Economists and analysts are slowly catching up as more data confirms this position.

Now a former chief economist at the Bank of England has warned that high levels of inflation could remain for the foreseeable future and will be a “massive shock to the system” for an entire generation to come.

Andy Haldane, who is now a government adviser, said that inflation had “surpassed my worst expectations” and was likely to exceed 10 per cent.

He also said that the Bank should have acted sooner rather than waiting until November before raising interest rates.

Haldane went on to say that higher interest rates could stick around for years as well. “Even this time last year I was worried that price pressures were bubbling up,” he said. “As it turned out, things have even surpassed my worst expectations. And we’re now looking prospectively at double-digit rates of inflation, which is not quite back to the 70s but getting on that way.

“And it’s not just that I think the level of inflation is high, I’m slightly fearful it might stick around for some while as well. This won’t come and go in a matter of months. I think this could be years rather than months.” Haldane also warned that the rises now anticipated would hit a generation of mortgage holders who have become accustomed to lower interest rates.

Haldane also said: “We have a whole generation now of mortgage holders, who have scarcely experienced a rise in interest rates, much less one that leads them picking up to, I don’t know, 3, 4, 5, 6 per cent. This is going to be a massive shock to the system, not just financially, but psychologically. I wanted us to slight touch on the brake or even a reduction of the pressure on the accelerator a bit sooner.”

“I think had we done that we probably wouldn’t be talking about rate rises as big or as rapid as we now are. Now to be clear, no amount of earlier squeezing on the brake would have fully prevented the cost of living crisis we’re getting. That is with us anyway, but do I wish we’d done a little bit more a little bit sooner, to tighten things up, so there wasn’t quite as much money chasing quite as many goods, which of course is what brings about rises in inflation in the first place? Yes, I do wish there had been that slightly more prompt action.”

The message is strong. The ramping up of interest rates to counteract inflation will dampen demand causing a recession. As inflation will not be beaten by interest rates – stagflation will occur.