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© Reuters. FILE PHOTO: Bank of England Governor Andrew Bailey poses for a photograph on the first day of his new role at the Central Bank in London, Britain March 16, 2020. Tolga Akmen/Pool via REUTERS/File Photo
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(Reuters) -Inflation running above the Bank of England's target of 2.0% is concerning and must be managed to prevent it from becoming permanently embedded, the bank's governor, Andrew Bailey, said in an interview with The Yorkshire Post newspaper.
"We are going to have a very delicate and challenging job on our hands so we have got to in a sense prevent the thing becoming permanently embedded because that would obviously be very damaging," Bailey told the newspaper.
"Unfortunately, if you look at our last forecast, it is going to go higher, I am afraid."
Bailey's comments appeared to favour the more hawkish side of the debate regarding the outlook for interest rates in Britain, despite growing signs of a slowing economy.
Financial markets have already priced in a roughly 90% chance of a rate hike before the end of the year.
The governor told the newspaper that with the pandemic having altered consumer behaviour, the economy had a whole range of challenges that had to be dealt with.
"We have got some very big and unwanted price changes," he said.
Bailey said pricing in the energy market indicated that inflation would prove to be less transient than the BoE originally predicted.
A price cap on consumers' energy tariffs set by the regulator is expected to rise again next year.
"A huge amount can happen between now and then so I am not going to speculate, but at the moment the forward curve would suggest that it would be higher so that would suggest inflation persistence, so transience would be longer," Bailey said.
He also said there were more people on the government's job retention furlough scheme when it ended last month than the bank had expected.
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