LONDON, July 18 Reuters Bank of England policymaker Michael Saunders, who has backed a bigger interest rate rise than most of his colleagues, said Bank Rate could reach 2 or higher during the next year in order to curb inflation expectations after the recent surge in prices.

The BoE has raised rates five times since December as it tries to stop the surge in inflation from becoming embedded in Britain39;s economy, and it is expected to increase them again at its August policy meeting which will be Saunders39;s last.

He warned that price pressures could be harder to stop than the BoE39;s central forecast projects thanks to Britain39;s declining rate of potential growth meaning the economy can no longer grow as quickly before generating excess inflation.

Financial market forecasts that Bank Rate currently at 1.25 would reach or surpass 2 during the next year were not implausible or unlikely, he added.

But, rather than focus on a precise forecast for Bank Rate over the next year, the key point is that the tightening cycle may in my view still have some way to go, he said in a speech at the Resolution Foundation think tank on Monday.

Saunders warned that the cost of tightening too slowly was probably higher than the cost of raising rates too much.

With excess demand and elevated inflation, 39;too little, too late39; would increase the likelihood that recent trends in underlying pay growth, longerterm inflation expectations and firms39; pricing strategies become…