The Bank of England’s chief economist has confirmed that further rate rises would be likely should inflation persist.
On Thursday, the BoE surprised markets when it increased interest rates to 0.25% from 0.1%, on the back of surging inflation. The current rate of inflation in the UK is 5.1%, the highest level since September 2011 and well above the BoE’s 2% target.
Interviewed on CNBC following the move, Huw Pill was asked if there would be “lot more rate hikes to come” if inflation persist.
He replied: “Well I think that’s true.
“Yesterday was the Bank’s response to a view that…underlying, more domestically-generated inflation here in the UK, probably centred around cost and wage pressures in a tight and tightening labour market, are going to prove more persistent through time.”
Pill also acknowledged that it remained unclear if Omicron would increase or dampen inflationary pressures.
“We need to move forward now cautiously, in the sense that we need to assess whether Omicron is going to lead to some reversal of the strength of the dynamics in the economy, and particularly in the labour market, that we have seen over the last six months-plus.”
The Monetary Policy Committee voted by 8 to 1 to increase rates. The BoE now believes inflation will peak at around 6% in April, and markets are pencilling in another increase in the cost of borrowing, to 0.5%, by March.