The Bank of England may need to hike official interest rates by more than what financial markets are currently pricing in, one of the central bank’s top officials said.
In an interview with Bloomberg, the BoE Deputy Governor, also said that it might take longer for the inflation crisis to fully unwind – due in part to strength in the labour market.
But he asked Britons to be confident that Bank would succeed in bringing prices down.
“Certainly on the basis of my current assessment of prospects, we’re not there yet in terms of how far monetary policy has to tighten,” Ramsden reportedly said. “I’m still very, very supportive of the forward guidance that there may well need to be further tightening in the coming months.”
The role of a tight labour market in feeding inflation risks over the medium-term was reinforced by his findings during a recent visit to companies in Cheshire and north Wales the week before.
Across pretty much all the businesses visited, such as Airbus, but including some smaller firms, the common theme were the challenges in finding and retaining staff.
Ramsden also showed concern for the difficulties households were facing, especially lower income ones.
He also highlighted the “material and interesting” differential between the expectations for rate hikes embedded in financial markets and those of market participants as revealed by the BoE´s own survey.
The latter tended to be lower and Ramsden believed that might be due to a lack of liquidity in certain financial securities.
Another explanation was that investors needed to protect themselves against the risk of higher prices.
“Like me, they’re seeing some upside risks.”