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(Bloomberg) -- The Bank of England must continue raising interest rates to bring inflation back to 2% even if it means more hardship for households, Deputy Governor Dave Ramsden said.

Citing concerns about the tight labor market and high inflation expectations, Ramsden said his bias was for further tightening.

The BOE has raised rates eight times since December to 3%, with Ramsden in favor of a historic three quarter point increase this month. Markets expect another half-point increase in December.

With inflation at 11.1%, more than five times the target level, the BOE is under pressure to tackle prices aggressively. However, the Monetary Policy Committee was split over how much more tightening is needed, given the dampening effect on demand of a looming recession.

Two members voted to raise rates by less than three quarters of a percent this month, arguing that the cost of living crisis made the case for a more gradual approach. Real wages are expected to fall 7% over the next two years.

Ramsden said he was more concerned that the BOE forecast, which showed inflation falling below target in 2024, may overstate the weakness of the economy at a time of sustained labor market tightness and increasing inflation expectations. 

He worries about an “emergence and embedding of an inflationary mentality” and faster-than-expected wage growth.

‘Necessary Steps’

“However challenging the short term consequences might be for the UK economy, the MPC must take the necessary steps in terms of monetary policy to return inflation to achieve the 2% target sustainably in the medium term,” he said.

Speaking at the Bank of England Watchers’ conference in London, he added that the big fiscal tightening announced in the autumn statement “will have very little effect” on rates as the vast majority of the measures do not come into effect until the end of the BOE’s three-year policy-setting horizon.

Ramsden expressed skepticism about the depth of recession that the BOE is predicting and said he is doubtful that unemployment will rise to 5% from current levels of 3.6%. 

“There are many other judgments in the forecasts where the risks are uncertain,” he added. The BOE was criticised this week by the Office for Budget Responsibility for assuming that households will not dip into their savings at all during the recession.

Ramsden added that, if his views do not play out, he “would consider the case for reducing Bank Rate, as appropriate.”

Answering questions following the speech, Ramsden said the risk premia in asset prices triggered by Liz Truss’s unfunded tax cuts has disappeared. Most of the giveaway was reversed in the face of market turmoil, and her successor, Rishi Sunak, last week announced £55 billion ($67 billion) of tax rises and spending cuts to fill a hole in the public finances. 

However, the episode has proved damaging the UK’s reputation and fully restoring credibility will take time, Ramsden said.

The BOE, the Treasury and the Office for Budget Responsibility are “back in a position where we are being allowed to get on with our jobs,” he said.

--With assistance from Liza Tetley.