Markets are on red alert to rising interest rates after UK inflation warning “above 5%” | City & Business | Finance
Bank of England chief economist Huw Pill said the UK central bank will have to make a “live” decision on interest rates at an upcoming meeting in November. However, Mr Pill added that an upcoming interest rate hike would be “finely balanced”. Mr Pill also raised the possibility of sharp price hikes expected later this year and early 2022 after markets take into account a hike in interest rates.
Speaking to the Financial Times, he said: âI wouldn’t be shocked, let’s put it that way if we see an impression of inflation near or above 5% in the coming months.
“And it’s a very uncomfortable place for a central bank with a 2% inflation target.”
Mr. Pill said the markets don’t need to have interest rates at an all-time low of 0.1%.
He added: âThe big picture is, I think, that there are reasons we don’t need the emergency parameters of the policy that we saw after the pandemic intensified.
âThe monetary policy parameters we have now are favorable parameters.
“The need for support has diminished as this political bridge to the other side of the pandemic has been built and widely crossed.”
Mr. Pill has been cautious in stating that interest rates will not rise above the 0.75% level that existed before the COVID-19 pandemic.
He said: “We do not see, given the transient nature of what we see in inflation in our baseline scenario, the need for a[restrictivepolicystance”[policystance”[positionpolitiquerestrictive”[policystance”
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The industry factored in a 0.25% forecast for November 4 along with further increases to 1% or more by the end of 2022.
Banks regularly price their loans in the financial markets, forcing them to follow the financial markets and account for an expected rise in interest rates.
Banks such as Barclays, NatWest, HSBC and Platform, which is part of the Co-operative Bank, have raised interest rates on some of their best lending options.
Hints of an upcoming interest rate hike were also reinforced by Andrew Bailey, the Governor of the Bank of England.
Mr Baily warned last Sunday in a message that he “will have to act and will have to do so if we see a risk, especially for medium-term inflation and medium-term inflation expectations.”