Bank outlook

Interest rates will rise to ‘appropriate’ level

Huw Pill: more to do (pic: Bank of England)

Interest rates will rise again to prevent inflation becoming embedded in the economy, but to an “appropriate” level ahead of a likely recession, said a senior official at the Bank of England.

The Bank last week announced the biggest single tightening in 33 years with a 75 basis points rise to take the rate to 3%, the eighth consecutive monthly increase.

Huw Pill, who replaced Andy Haldane last year as the Bank’s chief economist, said its Monetary Policy Committee (MPC) would raise rates again as it tried to break the “self-sustained” inflationary cycle where companies continue to raise their prices and workers demand higher wages.

The Bank warned last week that the UK would suffer its longest recession in a century if interest rates rose to as high as 5.25%, as money markets were expecting in mid-October.

Even at the present rate, the economy is on course to suffer a five-quarter recession starting this winter.

However, Mr Pill reinforced comments by Bank governor Andrew Bailey who said the MPC is not looking to raise rates to that level.

“We have done some [tightening] and there is more to do.” said Mr Pill. “That doesn’t mean we’re going to move at a pre-defined pace until kingdom come. At some point you have to think about what level of rate is appropriate.”

Interest rate rises over the past year and a half

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