The Bank of England has cautioned over a bigger-than-expected rise in inflation due to rocketing energy costs and said the supply chain crisis was beginning to hamper Britain’s economic recovery.

The Bank cautioned that rising gas prices were set to push UK inflation above 4% by the end of the year.

It said Consumer Prices Index (CPI) inflation, currently at 3.2%, could remain above 4% into the second quarter of next year and may prove “somewhat more persistent”.

The Bank stuck by forecasts that the inflation leap would be only temporary as all nine members of the Monetary Policy Committee (MPC) voted to keep rates on hold at 0.1%.

But two policymakers, deputy governor Dave Ramsden and external MPC member Michael Saunders, called for a £35 billion cut to the Bank’s £895 billion quantitative easing (QE) programme amid the inflation fears, though they were outvoted 7-2.

Minutes of the latest decision revealed the Bank slashed its expectations for third quarter growth to 2.1% from 2.9% previously forecast in August. This would make a sharp drop from 4.8% growth between April and June.

“This downward revision in part reflects the emergence of some supply constraints on output,” the Bank said.

Minutes showed the MPC believed some developments over the past month have “strengthened” the case made in August that some tightening of monetary policy could be necessary to meet the central bank’s 2% inflation target.

However, in the latest report, the MPC added that “considerable uncertainties remain”.

It stressed that it will monitor developments in the jobs market, including the impact of cost increases on business and employees.

The rates decision comes as a sharp spike in wholesale gas prices is causing UK energy costs to soar, throwing the sector into crisis-mode and sparking hefty rises in bills for households and businesses.

It is heaping yet further inflation misery on to businesses, as supply chain issues and a lorry driver shortage is already causing prices to rise.

The Bank flagged signs that “bottlenecks in supply chains and labour shortages had started to affect output, particularly in the manufacturing and construction sectors”.

The minutes follow the biggest leap in inflation on record from 2% in July to 3.2%, according to recent official figures.

Financial markets have recently brought forward expectations for a rate rise to the first quarter of next year due to the steep CPI rises.

Despite pressure to rein in rising prices, the Bank is holding off from any action that could destabilise the economic recovery as growth starts to falter and ahead of the furlough scheme ending this month.

“Key questions include how the economy will adjust to the closure of the furlough scheme at the end of September; the extent, impact and duration of any change in unemployment, as well as the degree and persistence of any difficulties in matching available jobs with workers,” the Bank said.

Economist Samuel Tombs at Pantheon Macroeconomics said the Bank was “in a holding pattern until the impact of the end of furlough is known”.

“In our view, the outlook for building labour market slack and a tough fiscal consolidation suggests that the MPC will be able to wait until early 2023 to raise Bank Rate again.”

James Smith at ING added: “We think there are too many headwinds facing the growth outlook over the winter for this, or indeed a February rate hike to materialise.”