- Base rate still at emergency 0.1% level, it was cut as covid crisis
- Inflationary pressures rising, energy, fuel and food costs rising
- MPC member says rate hike may also be needed before end of this year
A major policy maker has warned that households should be prepared for a higher interest rate hike than expected as the Bank of England attempts to keep a lid on inflation.
Michael Saunders, who sits on the bank’s interest rate-setting monetary policy committee (MPC), also indicated that rates could be hiked earlier this year.
His remarks came as the Bank of England wrestled with the problem of inflation gripping the economy and whether it would be fleeting, as initially expected, or a longstanding issue.
On the rise: Michael Saunders, who sits on the bank’s monetary policy committee, hints that a rate hike could be taken early this year
Amid the energy crisis, labor shortage and supply chain chaos, families are facing a boom in the cost of living. The confluence of problems is raising the cost of goods and the electricity bills are skyrocketing.
With the December rate hike, the prices in the market are starting to rise and In an interview with the Sunday Telegraph It may not be off the mark, Saunders suggested.
A rate hike would drive up costs for millions of families with convertible mortgages, and put pressure on businesses that piled on debt to make ends meet during the pandemic.
It would also raise the interest bill on the UK’s massive £2trillion national debt pile. The nine-member committee will meet again in November and December.
At its last meeting, the MPC unanimously voted to keep the base rate at 0.1 percent – the record low level cut since the coronavirus outbreak emerged in early 2020.
However, two members of the MPC voted against continuing quantitative easing at its current level. It is the UK government’s bond buying programme, financed by issuing central bank reserves, with a target of £875 billion.
In its last August meeting, the MPC said the recovery from the Covid and growth from excess demand will temporarily raise CPI inflation in the near term – climbing to 4 per cent by the end of the year – driven largely by energy and commodity prices.
However, it added that based on market expectations for interest rates in August, ‘CPI inflation was expected to fall closer to the target of 2 per cent in the medium term’.
The September MPC report indicated that thinking may be changing and added a note of caution, saying that growth was slowing at the same time as inflationary pressures were mounting.
It said: ‘Since the August MPC meeting, the pace of recovery of global activity has shown signs of slowing down.
“Against a backdrop of strong goods demand and continued supply constraints, global inflationary pressures remain strong and there is some indication that cost pressures may prove more persistent.”
‘Some financial market indicators of inflation expectations have increased somewhat, including the United Kingdom.’
The Bank of England has no rate setting meeting this month, with the next meeting scheduled for Thursday 4 November. That rate decision will come with the latest quarterly inflation report – now known as the November Monetary Policy Report.
For this more in-depth look at the economy, inflation and monetary policy will be eagerly awaited for signs that rates may rise sooner than expected.
One factor that will work for the Bank of England is that inflation and concerns about it may already be changing consumer behavior and slowing growth, potentially reducing the demand-led element of cost of living. can do.
The pressure on household finances is balanced by essential expenses due to falling in the inflationary trap coupled with steep rise in energy and petrol prices.
Savings expert Kevin Brown from mutual investment firm Scottish Friendly said: ‘Our own analysis estimates that households are already swallowing at least £441.64 worth of energy and the price of petrol rises on average this winter.
‘If petrol prices exceed £1.60 a litre, families could end up paying an additional £700 per person or £1,200 more for a couple, both dependent on cars, outside London Not unusual.
With the weight of petrol and energy in the ONS basket of inflation being around 40 per cent, the overall increase in cost of living could still be much higher than this.
‘It is, in short, completely…