Bank of England warns interest rates may need to rise further as inflation ‘remains much too high’

The Bank of England (BoE) has warned that interest rates may need to rise further because inflation “remains much to high” but Andrew Bailey stressed “nothing is decided” yet.

The Bank’s governor that economic activity has been stronger and wages are rising which is adding to inflation pressures.

Bailey said, “Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided.

“The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions.”

He added: “At this stage, I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more.”

Bailey then warned that they are facing a difficult balancing act, he added, “If we do too little with interest rates now, we will only have to do more later on. The experience of the 1970s taught us that important lesson.

“But equally – second – we have to monitor carefully how the tightening we have already done is working its way through the economy to the prices faced by consumers.”

Speaking at the cost of living conference in London Bailey said the Bank’s move to increase interest rates in December 2021 from 0.1% to 4% will not immediately ease “unprecedented” rises in food prices or the energy bills amid Vladimir Putin’s war in Ukraine.

Bailey added, “People should not have to worry about inflation in this way.

“I am afraid monetary policy cannot make the shock to our national real income go away.

“But what monetary policy can – and must – do is to make sure that the inflation that has come to us from abroad does not become lasting inflation generated at home.

“Homemade inflation will not make us any better off as a country. Those with weak bargaining power will fall further behind.

“That is why we have increased Bank Rate.”

The Bank’s governor is expecting energy prices to fall even further this year and the price cap could drop below the government’s energy price guarantee.

Bailey said, “Energy bills will start to drag directly on overall annual consumer price inflation.

“But as you can see, this does not mean that we should expect household energy bills to come down to previous levels any time soon.

“And from a cost-of living perspective, it is the level of what people have to pay that matters.

“There will be some relief, but energy bills will remain a challenge for many people, particularly for those on lower incomes.”