A 50-basis point rise in the interest rate will be on the table at the next meeting of the Bank of England’s decision makers, the Bank’s boss will say as he pledges to get inflation under control.
Governor Andrew Bailey is expected to say that rising interest rates from 1.25 per cent to 1.75 per cent would be one of the options for the Monetary Policy Committee.
Although in the past the Bank of England has opted for smaller interest rate rises, some committee members have argued for quicker rate rises.
At the annual Mansion House speech in the City of London, Mr Bailey will urge against reading too much into the statement.
“At the MPC’s last meeting we adopted language which made clear that if we see signs of greater persistence of inflation, and price and wage setting would be such signs, we will have to act forcefully,” he will say, according to early released excerpts of his speech.
“In simple terms, this means that a 50-basis-point increase will be among the choices on the table when we next meet.
“Fifty basis points is not locked in, and anyone who predicts that is doing so based on their own view.”
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The committee will next meet on August 5 and will be keeping a close eye on the latest inflation figures.
The Office for National Statistics will on Wednesday reveal what happened to inflation in June.
Consumer Prices Index inflation is widely expected to have risen again from May’s 9.1 per cent – already a 40-year high.
But bank forecasts put CPI at more than 11 per cent in October this year.
The Bank of England is responsible for trying to keep inflation in the UK under control. Two per cent annual inflation is the target.
“Let me be quite clear, there are no ifs or buts in our commitment to the 2 per cent inflation target," Mr Bailey will say. "That’s our job, and that’s what we will do."
But it is a daunting task at this time.
“From the perspective of monetary policy, these times are the largest challenge to the monetary policy regime of inflation targeting that we have seen in the quarter century since the MPC was created in 1997,” Mr Bailey will say.
He will say a number of factors are pushing up inflation, including reopening the economy after the Covid-19 pandemic, the loss of workers in the UK and Russia’s war against Ukraine.
“The big external shocks, from Russia and supply chains, account both for a large part of the inflation overshoot above target and for the squeeze on real incomes,” Mr Bailey will say.
“My sense of the latest data is that the supply chain-goods shock has started to ease, but the Russian impact, particularly on natural gas prices in Europe, is going the other way as we look ahead to the winter.
“The effect of these shocks has been to increase the cost of things we import relative to things we produce domestically.”
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Mr Bailey will also reveal that the Bank of England has sent its whole fleet of armoured vehicles to take cash to Ukraine.
“Recently, the governor of the National Bank of Ukraine asked me if we had any spare armoured vehicles," he will say. "He wanted to use them to support cash distribution around Ukraine.
“It so happened that we have stopped using our own transportation to move banknotes around this country, and our fleet of three vehicles was due to be taken out of service.
“Our staff immediately set about getting them ready, drove them to the Polish-Ukrainian border and handed them over. That made me very proud.”
