Ultimate magazine theme for WordPress.

Bank of England head insists interest rates will rise in the coming months

0 7

Bank of England governor Andrew Bailey insisted on Friday that the UK central bank will not “bottle it” when it comes to raising interest rates in the coming months.

The governor said the only reason the BoE surprised financial markets on Thursday by holding rates at the historic low of 0.1 per cent was that it wanted to gather more information about the effects on the labour market of the end of the furlough scheme in October.

Bailey did not give an indication when the central bank would start to raise rates for the first time since 2018 but was categorical that they would rise, leaving little wriggle room for him or the bank to change its mind.

“We do think interest rates will need to rise and they will rise,” Bailey told the BBC’s Today programme, adding that his clear commitment to higher interest rates was meant to be heard in financial markets and the country. “That was deliberate,” the governor said.

He appeared irritated by suggestions the bank’s Monetary Policy Committee had failed to live up to its rhetoric that suggested the central bank had to act imminently to quell inflationary pressure in the UK economy ahead of the November meeting. “Let me assure you, we won’t bottle it,” Bailey said.

Bailey has come under pressure because he made a commitment that the BoE “will have to act” to tame inflation, expected to rise to 5 per cent next April, and then voted against a rate rise, saying that his previous statements had been “truisms”.

Financial markets gyrated on Thursday after the decision to back away from an immediate rate rise, seeking a new level to take account of their misunderstanding of the governor’s intentions.

Sterling fell 1.5 per cent to $1.352 after the announcement, its weakest level against the US dollar in five weeks. Short-term UK government bonds staged the biggest one-day rally since March last year, pushing the two-year yield 0.21 percentage points lower to 0.48 per cent.

Asked why the BoE had not acted immediately if it was so sure interest rate rises were needed, Bailey replied that “the answer is really all to do with the labour market in my view”. Explaining that the bank needed to understand the effects of the end of the furlough scheme, he said there was not one single measure the MPC was looking at to make its judgment.

With inflation set to rise to its highest level in a decade, Bailey apologised for the damage higher prices would do to household real incomes, but said the BoE still thought that higher prices were a one-off change rather than the start of a process of persistently higher inflation.

“Inflation is clearly something that bites on peoples’ household incomes,” he said, blaming global issues such as higher energy prices and disruption in supply chains. “We’re not going back to the ’70s,” said Bailey. “That was a very different era.”

Leave A Reply

Your email address will not be published.