The Bank of England will “have to act” on inflation, governor Andrew Bailey has told bankers, in another signal that the bank is seriously considering raising interest rates.
Speaking to the G30 Annual International Banking Seminar yesterday (October 17), the governor of the UK central bank said: “Monetary policy cannot solve supply side problems... but [central banks] will have to act and must do so if we see a risk particularly to medium term inflation...that’s why we at the Bank of England have signalled that we will have to act.”
This marked the second time the governor has hinted at an interest rate rise in the immediate future.
In September, Bailey told the Society of Professional Economists’ annual dinner that a base rate hike might happen before the end of the current asset purchase programme, which is due to end in December this year.
This was despite the bank’s monetary policy committee unanimously voting a week earlier to maintain the base rate of interest at 0.1 per cent.
In the speech yesterday Bailey said he continued to think higher inflation will be temporary, due to the temporary nature of the underlying causes.
But he added: “But the energy story particularly means that [higher inflation] will last longer and it will get into the annual numbers as a consequence of that, and that raises for central banks the fear and concern of embedded expectations.”
Bailey previously outlined the “base effects” he blamed for the rise in inflation, which has overshot the BoE’s target of 2 per cent since May this year.
These included the reduction in prices last August as a result of the government’s “Eat Out to Help Out” scheme, as well as temporary VAT cuts.
Inflation jumped to 3.2 per cent in the 12 months to August 2021, up from 2 per cent in July, making it the largest ever recorded increase.
sally.hickey@ft.com
