Bank of England governor warns interest rates could rise further

Bank of England Governor Andrew Bailey (Yui Mok/PA)

Interest rates may need to be raised more than initially expected to fight inflation, the Governor of the Bank of England has suggested.

It comes as Andrew Bailey said he spoke to new Chancellor Jeremy Hunt on Friday and had an ‘immediate meeting of minds’.

In a speech in Washington, Mr Bailey reiterated that Bank officials “will not hesitate” to raise interest rates if necessary to fight inflation, while warning that a “stronger” response than expected might be necessary.

Mr Bailey’s public comments have taken on added importance in recent weeks after the government’s mini-budget spooked markets, sent the pound plummeting and forced the independent Bank of England to intervene in a bid to restore stability financial.

The political and economic chaos unleashed by then-Chancellor Kwasi Kwarteng’s tax-cutting budget ultimately culminated in his dismissal on Friday by Prime Minister Liz Truss, as she continues her bid to restore fiscal credibility to his government.

Mr Hunt will now present the Government’s budget plan at the end of the month, a statement the new Chancellor has admitted will be more akin to a full budget.

In his short address, Mr Bailey acknowledged what he called the “twitching” in UK markets as he signaled that interest rates could rise again.

On September 22, the Bank’s Monetary Policy Committee (MPC) raised rates by 0.5 percentage point to 2.25%.

Speaking at the annual G30 international banking seminar, Mr Bailey said: ‘The UK government has made a number of budget announcements and has set 31 October as the date for a further budget statement.

He said the Bank’s Monetary Policy Committee “will respond to all this news at its next meeting in just under three weeks.”

Mr Bailey added: “This is the right sequence, in my opinion. We will then know the full scope of fiscal policy, but I will repeat what I have said before: we will not hesitate to raise interest rates. interest in achieving the inflation target.

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

Responding to questions after his speech, Mr Bailey said: ‘I can tell you that I spoke to Jeremy Hunt, the new Chancellor, yesterday.

“I can tell you that there was a very clear and immediate convergence of views between us on the importance of fiscal sustainability and the importance of taking steps to achieve it.”

He continued, “It’s not appropriate for me to constrain the choices he makes, but the very clear message I would give, and that’s a clear message for everyone, including a clear message for markets…

“I can tell you that there is a very clear and immediate convergence of views on the importance of stability and sustainability.”

Mr Bailey, who was intentionally circumspect in his comments, said his statement on Monday after the mini-budget was not something he was “used to doing”.

“I thought I had to do it,” he said.

In brief remarks on fiscal policy that he said were relevant to the central bank, he spoke of the value of “fiscal policy sustainability.”

He also emphasized “the need in our case to involve the Office of Budget Responsibility (OBR), that flying blind is not a way to achieve sustainability.

“For me, the OBR is now back in the picture.”

Elsewhere in his speech, Mr Bailey said UK financial markets had seen ‘violent movement’ in recent weeks as he discussed the Bank’s temporary bond-buying intervention following the mini -budget.

He told the audience: “There may seem to be a tension here between tightening monetary policy as we must, including so-called quantitative tightening, and buying government debt to mitigate a critical threat. for financial stability.

“That explains why we have been clear that our interventions on this last point are strictly temporary, and have been designed to do the minimum possible or necessary.”

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