Bank of England (BoE) will “probably have to raise” interest rates to tackle the ongoing inflation in UK, BoE’s deputy governor Dave Ramsden told Reuters.
Inflation has been on the rise ever since the global economy reopened post pandemic lockdowns, followed by the Ukraine-Russia conflict.
Inflation is expected to return to the BoE’s 2 percent target – down from above 9 percent now and a projected peak of 13 percent in October – as the economy goes into a recession and borrowing costs rise, Reuters said, adding that according to Ramsden, “there was also a risk of an inflation mentality developing.”
Recently in August, it was also reported that the interest rates were raised from 1.25 percent to 1.75 percent.
The increase was the largest of its kind since 1995 and the first half-point increase since the lender gained operational independence in 1997.
The move was done by the BoE to mirror the rate increases by the European Central Bank and the US Federal Reserve.
However, the decision to raise interest rates further from their current 14-year high is still a pending decision, according to Ramsden.
“For me personally, I do think it’s more likely than not that we will have to raise Bank Rate further. But I haven’t reached a firm decision on that,” Ramsden said in an interview with Reuters, adding that he would be looking into the indicators and the evidence as they approach every meeting.
“We know that what we’re doing is adding to an already very challenging environment,” Ramsden said. “But our assessment is we needed to act forcefully to ensure that inflation doesn’t become embedded.”
In terms of Bank Rate, Ramsden avoided stating a prediction as the economy continues to evolve.
According to Reuters, the BoE plans to move Britain’s economy off its massive stimulus programmes by starting to sell government bonds – a process known as quantitative tightening (QT) – as soon as next month.
When asked if the bank would continue selling bonds to cut interest rates in order to support the economy, Ramsden told Reuters that it was “a possible scenario.”
“I’m certainly not ruling out a situation where when we look at the risk to the economy, having been raising Bank Rate, at some point we then have to start lowering it quite quickly,” he said. “I can imagine situations, yes, where we’ll carry on… with a pace of QT in the background.”
The tightening effect of selling down the BoE’s bond stockpile was likely “at the margin,” said Ramsden who as the BoE’s deputy governor for markets is in charge of its balance sheet, Reuters reported.
Ramsden was also met with criticism by Liz Truss, who aims to be Britain’s next prime minister.
Truss said the BoE should have “less independence,” according to Reuters, and learn from the experience of other central banks, globally.
“I think it’s perfectly reasonable to look at international experience … and see how its how it’s operating,” Ramsden said, pushing back at the criticism.
“That’s quite distinct … from going back and revisiting independence itself,” he told Reuters.
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