WASHINGTON, Oct 15 (Reuters) – A sharper-than-expected interest rate hike may be needed to rein in inflation because of large government energy aid to households and businesses, as well as projects government tax cuts, Bank of England (BoE) Governor Andrew Bailey said on Saturday.
“We will not hesitate to raise interest rates to achieve the desired inflation target,” he said at an event on the sidelines of International Monetary Fund (IMF) meetings in Washington.
“And, as things stand, in my view, inflationary pressures will require a stronger response than perhaps we thought in August,” he added.
The BoE’s next monetary policy meeting is scheduled for November 3 and many investors believe that the central bank could on this occasion raise its rates from 2.25% to 3%, or even 3.25%, a much more sustained pace. than previous increases.
The BoE will study the impact of the government’s energy support program and the budget statement by new Finance Minister Jeremy Hunt scheduled for October 31, said Andrew Bailey.
“The MPC (the Monetary Policy Committee) will respond to all this information at its next meeting in just under three weeks,” he said. “This is the right sequence in my opinion. Then we will know the full scope of fiscal policy,” he added.
The United Kingdom has been plunged into financial turmoil since former Finance Minister Kwasi Kwarteng, replaced on Friday by Jeremy Hunt, presented a “mini-budget” at the end of September providing for tax cuts and aid for households and companies without specifying the financing of these measures.
This led to a fall in the pound sterling and a surge in government bond yields, forcing the Bank of England to intervene urgently.
The Bank of England ended its emergency bond buying program on Friday.
Jeremy Hunt for his part said on Saturday that the government would raise certain taxes and public spending, while warning against difficult decisions to be taken to restore the credibility of the country’s economic policy. (Report William Schomberg and Michael Holden in London; French version Claude Chendjou)