Interest rate rise will be higher than expected next month, Bank of England chief suggests

Interest rates will have to be raised higher than initially hoped in the face of inflationary pressures, the Bank of England governor has suggested.

Speaking at an International Monetary Fund event in Washington, Andrew Bailey said he “will not hesitate” to increase the cost of borrowing to meet the central bank’s inflation target.

Hunt warns of ‘difficult decisions’ – follow politics latest

The BoE is due to announce its next decision on interest rates on 3 November and many investors think it will either raise them from their current level of 2.25% to 3% or possibly 3.25%, both of which would be much bigger moves than usual.

The bank chief said: “We will not hesitate to raise interest rates to meet the inflation target.

“And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we
perhaps thought in August.”

The bank previously predicted the rate of inflation would peak at 11% in October.

Mr Bailey said the bank would assess the impact of the government’s energy support scheme and the 31 October budget statement of new Chancellor Jeremy Hunt, who took up the role on Friday after Kwasi Kwarteng was sacked following a month of financial market turmoil triggered by his tax cut plans.

He added: “The MPC (Monetary Policy Committee) will respond to all this news at its next meeting in just under three weeks from now.

“This is the correct sequence in my view. We will know the full scope of fiscal policy by then.”

In a further major U-turn on Friday, Prime Minister Liz Truss scrapped a freeze in corporation tax rate and said she would instead allow it to rise from April, as planned by Britain’s previous government.

She also said spending would increase by less than planned.

Mr Hunt has said there “were mistakes” in the government’s mini-budget and some taxes might have to rise and others might not fall as much as planned.

Mr Bailey said the bank was able to operate monetary policy – chiefly interest rates – to manage the economy and also make financial stability interventions to address issues such as the recent surge in British government bond yields that threatened some pension funds.

The BoE ended its emergency bond-buying on Friday.

“In these difficult times, we need to be very clear on this framework of intervention,” Mr Bailey said.

For all the latest business News Click Here 

Read original article here

Denial of responsibility! TechAI is an automatic aggregator around the global media. All the content are available free on Internet. We have just arranged it in one platform for educational purpose only. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials on our website, please contact us by email – [email protected]. The content will be deleted within 24 hours.