The Bank of England may need to raise interest rates over the “next year or so” if the UK economy continues to recover and inflation remains persistently higher than expected, a top official said.
In remarks made at an online event hosted by Intuit, Michael Saunders said a hike in Bank Rate could materialise before the end of 2022.
“If the economy continues to recover, and inflation shows signs of being more persistent, then it might be right to think of interest rates going up in the next year or so,” the Monetary Policy Committee member said.
Nevertheless, he added that any increase would be “relatively limited”.
Indeed, he also said even that was “not a promise and depends on economic conditions.”
On the flip-side, Saunders, one of the MPC’s more hawkish members, was also concerned about the risk that continuing with Bank’s asset purchases could see households’ and companies’ inflation expectations drift higher.
In turn, he said: “such an outcome could well require a more substantial tightening of monetary policy later, and might limit the committee’s scope to respond promptly the next time the economy needs more stimulus.”
Saunders voted at the MPC’s 5 August policy meeting in favour of stopping Bank’s quantitative easing “as soon as practical”.
