UK interest rate hike in 2022 becomes more likely, says Bank chief | Interest rate

Rising inflationary pressures in the UK have made it more likely that interest rates will hike next year, the central bank chief has warned.

Amid rising fuel prices and the prospect of rising transport costs pushing up food prices in the run-up to Christmas, the Governor of the Bank of England said there were signs that inflation could be sustained and that the central bank’s monetary policy committee (MPC) may have to increase borrowing costs in 2022.

With inflation at 3.2% and heading above 4%, he said inflationary pressures appeared to be worsening rather than improving, although a slowing rate of growth in the economy in the past. the past few months has meant that the MPC would be reluctant to do anything that would stifle the recovery.

Speaking to the Society of Professional Economists in London, Andrew Bailey said: “Recent evidence seems to have reinforced this case. [for an increase in interest rates] but substantial uncertainties remain and we are monitoring the situation closely. “

Last week, the MPC voted to keep interest rates at 0.25% and its £ 875 billion stimulus package after fears that a rebound in economic growth since the start of the year could begins to run out of steam.

The committee said it fears there are more people in the government’s holiday program than the Bank predicted in its August health check on the economy, fueling fears that unemployment does not increase at the end of the program this week.

Downplaying prospects of a return to previously high growth levels, Bailey said the economy remains on track to a post-Covid situation and policymakers should put in “hard yards” to orient themselves towards security.

“I, and other members of the MPC, have used the analogy of a bridge to describe the role of economic policy in the age of Covid, the bridge to the other side of Covid. We are still on this bridge, ”he said.

“The rate of recovery has slowed in recent months, and this slowdown continues. Compared to the fourth quarter of 2019, on the latest data in July, the level of GDP was 3.5% lower.

“It’s about a percentage point below the level consistent with the August Monetary Policy Report. It is inevitable in the event of a rebound that the growth rate will slow down as the recovery nears its end point. However, it is not inevitable – or desirable – that the previous level will not be returned. ”

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Samuel Tombs, chief economist at consultancy Pantheon Macroeconomics, said Bailey’s negative comments on the economy could be compared to his worries about inflation to keep the path of interest rates open.

“Our feeling from the speech is that Mr. Bailey leans over in a conciliatory manner and is not going to rush to hike [interest rates], unless the case is extremely solid, ”he said.

“But given that the amount of slack in the labor market will be much more apparent in December, when the impact of the gradual reduction in the leave scheme at the end of this month will be visible in official data, Mr Bailey covers his bets and not to provide hostages to fortune.

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