Interest rates may increase, Bank of England warns

Wednesday 20th October 2021 06:40 EDT

The Bank of England "will have to act" over rising inflation, governor Andrew Bailey warned, suggesting that UK interest rates may rise soon. However, he gave no indication of when the Bank might increase rates from the current record low of 0.1%.

The Bank has already said UK inflation is set to exceed 4% before falling back as the economy recovers from Covid. But Bailey said surging energy prices would push inflation higher for longer than previously thought. Investors are expecting rates to be raised later this year or early in 2022, in an effort to bring inflation back down to the Bank's target of 2%.

The most recent figures show prices rose by an average of 3.2% over the past 12 months. Financial commentators described Bailey's remarks as his clearest hint yet that a rate increase could be imminent. "Monetary policy cannot solve supply-side problems - but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations," the Bank governor said.

"And that's why we at the Bank of England have signalled, and this is another such signal, that we will have to act," he added. "But of course, that action comes in our monetary policy meetings." The Bank's rate-setting Monetary Policy Committee (MPC) is next due to meet on 4 November.
Bailey said demand for workers in the UK had been stronger than expected, while the number of younger and older workers leaving the labour market had grown. "I do have concerns about labour supply growth," he said.

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