The governor of the Bank of England, Andrew Bailey, has warned Britain’s economic recovery from Covid-19 is slowing amid supply chain disruption and staff shortages. Answering questions from MPs on the commons Treasury committee, Bailey said there was evidence of the recovery “levelling off” despite the easing of pandemic restrictions earlier in the summer. He said the economic fallout from the disease had “attenuated a lot” over recent months, helping growth to rebound. “But it’s still within the context of this imbalance in demand for goods and services. At the moment we’re seeing some levelling off of the recovery, the short-term indicators are suggesting that,” he said. The Bank’s governor suggested that Covid disruption to global supply chains, which have upended industries from car making to hospitality, had proved more persistent than expected by Threadneedle Street earlier this year, as higher rates of coronavirus infections and heightened demand for manufactured goods put pressure on shipments. He said there had been an expectation that consumer demand for goods would increasingly switch to services as pandemic restrictions were relaxed, but that had so far not happened as much as expected. “There’s this underlying story of imbalanced demand, which we thought would by now have been well on the way to correcting itself,” he said. Bailey said much of the inflationary pressure caused by the pandemic would eventually fade, adding that current high levels of global commodity prices – such as steel, agricultural goods and oil – were likely to fall because market prices typically tend to revert back to average levels over time. “We expect the bottlenecks to sort themselves out,” he added. However, he expressed concern about a continued shortage of workers, which could last longer than material shortages and push up inflation. “Others will speak for themselves, but I have a bit more concern about persistence in the labour market story,” he told the committee. Economists are concerned that shortages of workers and supplies, coupled with red hot demand for goods and services, could fuel persistently high levels of inflation as the UK emerges from the pandemic. Threadneedle Street forecasts inflation will hit 4% this year, before gradually falling back towards its 2% target rate. Bailey said the Bank’s rate-setting monetary policy committee would probably be forced to raise interest rates from the current level of 0.1% to combat inflationary pressures over the next two to three years. Lifting the lid on the MPC’s decision making process, he said the committee was evenly split four-four at its August meeting when weighing up whether the economic conditions had been met for raising borrowing costs. Bailey said he felt the conditions for a rate rise had been met, while deputy governors Dave Ramsden and Ben Broadbent said they agreed. Silvana Tenreyro, an external member of the MPC, said she disagreed. It comes after Michael Saunders, another external MPC member, said earlier this week that interest rates may needed to rise next year. The MPC voted unanimously last month to keep interest rates unchanged, while Saunders cast a sole dissenting vote to stop short the Bank’s £895bn quantitative easing bond-buying programme.