With inflation currently at a near 40-year high, the governor of the Bank of England, Andrew Bailey, has warned that interest rates may have to increase.
Speaking at a conference on the cost of living crisis in London yesterday, Bailey, 63, said if the Bank does “too little with interest rates now, we will only have to do more later on”.
If Bailey and the rest of the monetary policy committee (MPC) decide to increase borrowing costs again this month, it will be the 11th consecutive time.
The rate of price increases currently stands at 101%, below the peak of 11.1% recorded in October last year, but Bailey has hinted that the MPC is concerned that inflation will rise again if it fails to act.
Analysts believe that a combination of the Bank’s rate increases and energy prices falling could push inflation back down to Bailey’s 2% target by the end of the year.
Many experts believe that the Bank is close to ending its rate hike campaign at its next meeting on 23 March with a final 25 basis point rise.
However, signs that the UK economy is responding strongly to tighter financial conditions and may even avoid a recession has triggered a rise in markets’ peak rate expectations to almost 5%.
Bailey said: “We have to monitor carefully how the tightening we have already done is working its way through the economy to the prices faced by consumers.
“Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided.”
“We need to calibrate monetary policy with great care to return inflation to target sustainably. That is the best contribution monetary policy can make to a fair society,” he added.
Comments (5)
I agree with all here that interest rate rises are no longer the answer and that was the case some time ago when controllable demand had already been stripped out of the economy. Further, interest rate rises (the cost of money) are themselves inflationary. If this true there is something else at play here
Interest rates are being used to control inflation.
The normal consumer who is affected the most by interest rate rises isn’t the cause of the inflation in the first place.
This is the financial equivalent of an innocent bystander being beaten about the head with a baseball bat for the ostensible reason of teaching some anonymous wealthy guys a much needed lesson because they successfully managed to extract (you could read “stole” here but it was with permission really) vast sums of money from our country.
The rich wealthy guys have just got out the popcorn and are enjoying the show. They have been taught a lesson – how to get away with blue ****** murder.
Wow! The swear filter gets rid of b l o o d y!
Talk about being a ‘one trick pony!’
But playing the same trick 11 times in a row is pretty predictable.
If you haven’t got it under control after 10 rate rises in a year, then clearly they are not the answer.