BoE warns of future UK rate hikes if inflation persists

BoE warns of future UK rate hikes if inflation persists

The tax hikes and spending cuts announced in the UK government’s autumn statement are unlikely to persuade the Bank of England to moderate future interest rate hikes, the deputy governor of the UK said on Thursday. the central bank.

Addressing the first BoE observers’ conference at King’s College London, Sir Dave Ramsden appeared to undermine Chancellor Jeremy Hunt’s assertion, who said in his statement that the £55billion fiscal consolidation of the government would allow interest rates to be “significantly lower”.

Ramsden said measures to reduce government borrowing would come into effect too late to influence BoE monetary policy in the coming months.

The vast majority of the measures unveiled by Hunt, “will not come into effect until April 2025 and will therefore have very little effect over the Monetary Policy Committee’s three-year forecast horizon, compared to what was assumed in the November monetary policy report,” he said. said at the conference.

The BoE previously said it would reconsider its interest rate plans if the government imposes measures in the statement that immediately change the state of the economy, worsening the economic downturn and putting downward pressure on the economy. ‘inflation.

Ramsden said he believed the BoE needed to tighten monetary policy further. “I expect that further increases in the Bank Rate will be needed to ensure a sustained return of inflation to target,” he said.

The Deputy Governor made it clear that he would consider another sharp interest rate hike at the next meeting in mid-December if he saw that companies still felt able to raise prices to defend margins. beneficiaries and raise wages well above the 2% inflation target.

“If the outlook suggests more lingering inflationary pressures, I will continue to vote to respond strongly,” Ramsden told delegates.

The BoE raised interest rates by 0.5 percentage points in August and September and by 0.75 percentage points this month, taking the official rate to 3%, its highest level since 2008.

Ramsden noted that although his bias is “in favor of further tightening”, he would “consider cutting the bank rate”, if the economy developed differently from his expectations and persistent inflation stopped rising. be a concern.

At its last meeting, the MPC signaled that if inflation started to contract, which is expected as the UK enters a recession, it would not need to raise rates much more to bring inflation back. inflation to its target of 2%.

Financial markets still expect the BoE rate to rise to 4.5% next year.

The BoE Observers Conference, held for the first time this year, is a UK version of the long-running annual ECB and its Observers event in Frankfurt. It brings together policy makers, market economists and academics to discuss monetary and financial policy.

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