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Bank of England 'likely' to raise interest rates further, says deputy governor

·Finance Reporter, Yahoo Finance UK
·2 min read
Bank of England Deputy Governor Dave Ramsden sits for a portrait during an interview with Reuters, at the Bank of England, London, Britain, August 8, 2022.  REUTERS/Toby Melville
Bank of England deputy governor Dave Ramsden warns that inflationary pressures are gaining a foothold in the UK's economy. Photo: Toby Melville/Reuters

Deputy governor Dave Ramsden has signalled that the Bank of England would likely need to raise interest rates again in the coming months.

The spread of inflation was showing up in rising UK pay and companies’ pricing plans, having originally been triggered by the reopening of the world economy from COVID-19 lockdowns and then by Russia’s invasion of Ukraine, Ramsden told Reuters.

Inflation is expected to return to the BoE's 2% target – down from above 9% now and a projected peak of 13% in October – as the economy goes into a recession and borrowing costs rise.

Inflation is set to hit 13.1%
Inflation is set to hit 13.1%

But there was also a risk of an inflation mentality developing, Ramsden warned.

Read more: How Bank of England’s interest rate rise will affect mortgages and house prices

"For me personally, I do think it's more likely than not that we will have to raise Bank Rate further. But I haven't reached a firm decision on that," he said.

"I'm going to look at the indicators, look at the evidence as we approach each upcoming meeting."

Last week, the Bank of England (BoE) hiked UK interest rates by 50 basis points to 1.75% as it looks to combat runaway inflation, which it predicts will hit 13% later this year.

Interest rates are climbing as the BoE tackles inflation
Interest rates are climbing as the BoE tackles inflation

It marked the sixth consecutive increase from the central bank, and biggest interest rate hike in 27 years since the Monetary Policy Committee (MPC) was set up back in 1997. Interest rates are now at their highest level since December 2008.

“We know that what we’re doing is adding to an already very challenging environment. But our assessment is we needed to act forcefully to ensure that inflation doesn’t become embedded,” Ramsden said.

Asked if Bank Rate was close to hitting a peak, Ramsden said that over the past year the BoE had to deal with the end of COVID-19 restrictions that hammered Britain's economy and the Russia-Ukraine war that pushed inflation to its 40 year-high.

Read more: UK households ‘counting pennies’ as living costs soar

"We're in extraordinary period where a lot is changing. So I wouldn't want to make any predictions about where Bank Rate is going to end up," Ramsden said.

"I guess one thing I would say is I think inflation expectations remain anchored and that's really important."

UK inflation hit 9.4% in the year to June, partly due to a 42% year-on-year increase in petrol prices, and an increase of almost 10% in food prices.

Watch: How does inflation affect interest rates?