Bank of England restates commitment to increase interest rates further to combat inflation

The Bank of England has issued a statement setting out its commitment to its role in restoring inflation to 2% through further interest rate rises.

The statement follows the announcement of the incoming Chancellor’s Growth Plan for the UK economy, which has seen the value of the pound drop significantly against all currencies, particularly the US Dollar. With the pound approaching parity with the dollar and also falling in value against the euro, there are fears that this could drive further inflation by further driving up the cost of imports, particularly fuel and food costs.

The Bank of England’s full statement reads:

“The Bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets.

“In recent weeks, the Government has made a number of important announcements. The Government’s Energy Price Guarantee will reduce the near-term peak in inflation. Last Friday the Government announced its Growth Plan, on which the Chancellor has provided further detail in his statement today. I welcome the Government’s commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances.

“The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term. As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the Government’s announcements, and the fall in sterling, and act accordingly. The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2% target sustainably in the medium term, in line with its remit.”

The Bank of England last week raised its base interest rates to 2.25% and welcomed the effect of the Energy Price Guarantee in mitigating inflation, expected to peak this autumn. However, the Bank is now believed to be considering an emergency rate rise (the next Monetary Policy Committee meeting is scheduled for November) to restore market confidence in the UK economy. With financial markets predicting rates could reach as high as 6% over the next 12 months, many mortgage lenders have also withdrawn fixed interest products in expectation of rapid rates rises.