Cost of living

Raise rates quickly to curb inflation, says policymaker

Bank of England
The Bank of England raised rates last week (pic: Terry Murden)

Interest rates should be raised more quickly to avoid losing control of inflation, a Bank of England policymaker has said.

Michael Saunders, a member of the central bank’s monetary policy committee (MPC) since 2016, voted for a 0.5 percentage point rise at last week’s meeting which opted for a 0.25 percentage point rise to 1%.

It was the fourth consecutive monthly increase as the bank attempts to bring down inflation which stands at a 30 year high of 7% and is tipped to peak at 10.25% per cent in October.

Mr Saunders told the Resolution Foundation on Monday that inflation is “uncomfortably high” and delaying action will lead to “an even worse outcome for real incomes and living standards”.

Mr Saunders, who is due to step down from the nine-member committee in August, said he had voted for a 0.5 percentage point rise twice since the start of the year.

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He says inflation could be higher and more persistent than forecast by the Bank last week.

He warned that that failing to act “adequately” could cause longer-term inflation expectations to become further detached from the 2% inflation target.

Andrew Bailey, the Bank’s governor, told a recent meeting of central bankers meeting in the US that the bank was treading a “tight line” between controlling inflation and tipping the economy into recession.

Andy Haldane, former chief economist at the bank, said high inflation could remain until 2024 and will be a “massive shock to the system” for a generation.

Mr Haldane, now a government adviser, said inflation had “surpassed my worst expectations” and was likely to exceed 10%. He also said the Bank should have acted sooner than last autumn when raising interest rates.

Haldane said: “Even this time last year I was worried that price pressures were bubbling up. As it turned out, things have even surpassed my worst expectations.

“We’re looking prospectively at double-digit inflation, which is not quite back to the 70s but getting on that way. And it’s not just that the level of inflation is high, I’m slightly fearful it might stick around. This won’t be come and gone in months. I think this could be years rather than months.

“We have a whole generation now who have scarcely experienced a rise in interest rates, much less one that leads them picking up to, I don’t know, 3, 4, 5, 6 per cent. This is going to be a massive shock to the system, financially, psychologically.”

He said the Bank should have acted sooner. “I wanted us to slight touch on the brake or even a reduction on the accelerator,” he said. “I think, had we done that, we probably wouldn’t be talking about rate rises as big or as rapid as we now are.”

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