Workers seeking wage rises and firms trying to maintain profits in line with inflation could help sustain a spiral of prices and force further rate rise action, a top Bank of England official has warned.

The Bank’s chief economist Huw Pill said officials expect these so-called “second round” effects to be contained but that if they are not “further monetary policy response would be required”.

His comments come after BoE governor Andrew Bailey suggested that workers should not ask for big pay rises – remarks branded a “sick joke” by one union leader and rejected by Downing Street.

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The Bank lifted its base rate from 0.25% to 0.5% last week as it seeks to curb a jump in inflation – which in December hit a near three-decade high at 5.4%, and which the Bank predicts will top 7%.

Officials on the Bank’s monetary policy committee voted 5-4 in favour of the hike, with the minority supporting a bigger increase, to 0.75%.

In a speech to economists on Wednesday, Mr Pill – who voted with the majority for the smaller increase – said that was partly because he did not want interest rate policy to be seen as “foot to the floor” on the accelerator.

But he said he did not want to rule out a bigger hike in all circumstances.

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Mr Pill said higher international energy costs and goods prices in the long term would mean a “real hit to UK income” and that “someone will have to bear that cost”.

“The important question for monetary policy is how that happens; in particular, how pragmatic and realistic UK firms and households are in accepting the macroeconomic implications of the higher imported energy and goods prices,” he said.

Businesses and individuals responding by trying to protect their “real” incomes – that is, to keep them rising in line with inflation – could help keep up the price pressure.

“The longer that firms try to maintain real profit margins and employees try to maintain real wages, the more likely it is that domestically-generated inflation will achieve its own self-sustaining momentum even as the external impulse to UK inflation recedes,” Mr Pill said.

“Our baseline assumes that this risk of so-called second round effects will be contained, in part by the monetary policy measures taken and in prospect.

“But should this assumption come under threat or prove to be misplaced, a further monetary policy response would be required.”

Mr Pill added, however, that there was uncertainty on both sides – with the possibility of energy prices falling potentially meaning interest rates could be kept low.

The Bank has already signalled that there could be further rate increases and Mr Pill’s speech referred to “the prospect of more to come in the coming months”.

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But he also backed a “steady handed” approach.

Mr Pill’s comments come ahead of January inflation figures due next week.

Britain’s cost of living squeeze has seen a surge in prices across the board led by higher household bills but also including rising petrol and food costs.

It is set to worsen in the spring after Ofgem announced an increase in the energy price cap, which will add around £700 on average to annual gas and electricity charges for millions of consumers.

Latest labour market data shows wage rises are already struggling to keep pace.

In November, Mr Bailey played down the idea that inflation could face a 1970s-style wage-price spiral – suggesting that while employers might be paying more to hire new staff that would not necessarily translate into higher wages for existing workers.

But the governor’s comments on wages last week and Mr Pill’s language warning of “self-sustaining momentum” for inflation suggest officials are trying to guard against such a prospect.

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