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Saturday, Feb 22, 2025

Bank of England chief warns of fresh interest rate hike

Bank of England chief warns of fresh interest rate hike

The governor of the Bank of England has warned interest rates may need to rise by more than previously expected.

Speaking in Washington, Andrew Bailey said "inflationary pressures" meant a "stronger response" could be needed from the Bank than thought in August.

The next rate rise decision is on 3 November, days after the government lays out its economic plans.

Meanwhile, Mr Bailey described his discussions with the new Chancellor Jeremy Hunt as a "meeting of minds".

Mr Hunt, who was appointed on Friday after his predecessor Kwasi Kwarteng was abruptly sacked, has confirmed the government will set out its tax and spending plans on 31 October.

He has already signalled that some taxes could rise and public spending may fall.

Mr Bailey said the Bank will not take any action on interest rates until after this fiscal plan is announced, describing this as "the correct sequence" of action.

But speaking on Saturday, he said officials would "not hesitate to raise interest rates to meet the inflation target" of 2%.

The warning comes just weeks after the Bank hiked interest rates by 0.5% to 2.25% on 22 September.

Prior to Mr Bailey's comments, the markets were expecting a rise of between 0.75% and 1% when the Bank's Monetary Policy Committee makes its next rates decision in November.

Mr Bailey also commented on the effects of the government's recent mini-budget, which he said had been followed by some "some violent moves in the last few weeks" in UK markets.

He also spoke of the need "to have the Office for Budget Responsibility (OBR) involved" in the government's budget discussions, adding that "flying blind is not a way to achieve sustainability".

Last month, it was revealed that Mr Kwarteng had refused to allow the OBR to review the impact of his mini-budget on the economy before he delivered the statement.

The governor's intervention comes just hours after Mr Hunt told the BBC that some taxes could rise in the coming months and some departments could see their budgets slashed.

Marking a significant change in government policy, the chancellor told the Today programme that difficult decisions will be needed "across the board".

Taking questions after his speech in Washington, Mr Bailey signalled that he was in lockstep with the new chancellor.

"I can tell you that I spoke to Jeremy Hunt, the new chancellor, yesterday", Mr Bailey said.

"I can tell you that there was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that."

He added that the comment was intended as a "clear message for markets".


Watch: The Bank of England "will not hesitate to raise rates", says governor Andrew Bailey


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