To help curb high inflationary pressures, Bank of England governor Andrew Bailey warned of higher-than-expected interest rate rises.
Despite having already raised interest rates at each of its last seven meetings, the bank rate currently stands at 2.25%, but it is evident that they will rise further when the Bank’s monetary policy committee meets on 3 November.
The bank’s Andrew Bailey told reporters in Washington that it “will not hesitate to raise interest rates to meet the inflation target”.
“And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
It’s expected that the base rate will rise by 75 basis points from 2.25% to 3%, although Mr Bailey’s comments may suggest that the rate will rise by a full 100 basis points.
The actions being taken should cap inflation at around 11%, leading to a more rapid drop in inflation.
In his address to the annual International Banking Seminar, Bailey said: “UK financial markets have experienced some violent moves in the last few weeks particularly at the long-end of the government debt market.
“This has put the spotlight on flaws in the strategy and structure of one important part of a lot of pension funds.
“The Bank of England has had to intervene to deal with a threat to the stability of the financial system, our other core objective.
“There may appear to be a tension here between tightening monetary policy as we must, including so-called Quantitative Tightening, and buying government debt to ease a critical threat to financial stability.
“This explains why we have been clear that our interventions are strictly temporary, and have been designed to do the minimum necessary.”