LONDON (Reuters) - Bank of England chief economist Andy Haldane said on Thursday that the central bank needed to "look seriously" at raising interest rates to keep a lid on inflation which has pushed past the BoE's target and is set to rise further.
Last week, Haldane surprised financial markets by saying he was likely to vote for higher borrowing costs this year, adding to speculation about the first BoE rate hike in a decade.
"We need to look seriously at the possibility of raising interest rates to keep the lid on those cost of living increases," Haldane told the BBC during a visit to Wales.
"For now we are happy with where the rates are, we need to be vigilant for what happens next."
British inflation is at its highest level in nearly four years at 2.9 percent, tightening the squeeze on consumers who now face the added worry of political uncertainty after this month's inconclusive election.
The pay of workers has begun to lag behind inflation again after a decade of mostly falling spending power, something BoE Governor Mark Carney has said needs to improve before he would consider a rate hike.
Carney also wants to see the impact of the Brexit process on Britain's economy in the coming months.
Haldane told BBC television that low productivity growth was one of the biggest contributing causes to lack of pay growth.
Only between 1 and 5 percent of firms were "high-innovation" and "the root cause of the stagnation in productivity and pay is that long lower tail of firms. They're taking the low-productivity road," he said.
Haldane said in a separate interview on Thursday that interest rates needed to be set in a way which minimized the risk of persistently high inflation.
"First and foremost, we need to set our interest rate policy to prevent those higher inflation rates becoming entrenched," Haldane told the Guardian newspaper.
Haldane said that in addition to breaching the bank's inflation target of 2.0 percent another reason high inflation was a concern was because of its impact on the poorest.
This "is having big and serious consequences for those on the lowest incomes in society and that came across loud and clear today," Haldane said.
Reporting by Andy Bruce and Andrew MacAskill, editing by David Milliken