The Bank of England is leaving “all options on the table” including a higher 50 basis-point rate of interest to deal with the 40-year-high inflation the central bank’s Governor Andrew Bailey has warned.
Bailey spoke to an audience of central bankers that rate-makers will let the door open for more aggressive tightening of the monetary system despite the steady pace of rate hikes to date this year.
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“[It] leaves options on the table and that is very deliberate,” Bailey spoke to his audience members at this year’s European Central Bank annual forum held in Sintra, Portugal. “I would like people to get the message that, when we deal with the inflationshock, that you need to have options available. There will be situations where we need to be more proactive,” Bailey said.
The Bank has increased the interest rate at its previous five sessions with a 25-basis point increase making the base rate for the UK to 1.25 percent, the highest rate since 2009. But an increase of inflation, even with tightening monetary policy this year has raised the possibility of further aggressive 50 basis point increases to control inflationary pressures.
Bailey stated that he has not yet decided whether to support the 50-point increase after 3 of 9 members on the members of the members of the monetary policy council (MPC) were in favor of higher increases at the two recent rate-setting sessions. The Bank decides on the next decision on rates in the early part of August.
UK consumer price inflation is 9.1 percent, which is the highest level since 1982 and is expected to rise at 11 percent in the coming year and make Britain the most impacted developing world economic system. Bailey claimed that double-digit inflation was mostly the result of the country’s market for energy prices. The cost of living for households has been soaring with higher costs expected in October.
He added that if inflation becomes more persistent, “then we will act more forcefully and we will have to.”
The pound has fallen more than 10 percent against the dollar in the past year, bringing inflation pressures through the increase in the cost of imports. Bailey stated that he was “not surprised” as “the UK economy is weakening more than others”.
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Central banks around the world are been able to reverse their policies following more than 10 years of extremely low interest rates and monetary stimulation to fight the issue of inflation.
Christine Lagarde, president of the ECB stated: “I don’t think we will go back to the world of low inflation.”
The policymakers have been criticized for not predicting the rate at which inflation could rise after the Covid-19 measures to lock down inflation were lifted.