Andrew Bailey, Governor of the Bank of England, has warned that “the Bank of England will have to act” in response to rising inflation. This suggests that interest rates could rise quickly for UK residents.
However, he did not give any indication as to when the Bank would raise rates from its current record low 0.1%.
Already, the Bank stated that UK inflation would exceed 4% by 2020 before declining as soon as Covid is over.
Bailey claimed that inflation would rise for longer periods of time due to rising energy costs.
In order to reduce inflation to the Bank’s target rate of 2%, investors expect rates to rise in 2019 or 2022.
Recent figures indicate that prices increased an average 3.2% in the past twelve months. The latest figures will be released on Wednesday.
- What is driving the rising cost of living?
- Why are interest rates important?
According to financial commentators, Mr Bailey’s comments, made in an online forum of central bankers by Bailey, were his strongest hint that a rate rise could soon be on the horizon.
According to the Bank governor, “Monetary policies cannot fix supply-side problems. But it will need to take action if we perceive a risk to medium term inflation and medium-term expectations of inflation.”
“And this’s why the Bank of England has signalled, and that is another such signal. We will have to take action,” he said.
“But ofcourse, this action occurs in our meetings on monetary policy.”
On Thursday, 4 November will be the next meeting of Bank’s Monetary Policy Committee (MPC), which sets rates.
According to Mr Bailey, the UK’s demand for labour was stronger than anticipated and the labor market has seen a rise in older and younger workers.
He stated that he was concerned about the growth of labour supply.
David Blanchflower was an MPC member between 2006 and 2009. He strongly reacted to the notion of an immediate interest rate increase.
He said that there has been a few months of inflation growth, but this seems incredibly temporary to him.
He stated that the energy price rises were not “one-off shocks”.
He encouraged the MPC not to wait and to “steady-as you go” thus:
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