Bank hints at higher interest rates.

 

How much tougher will the Bank of England get on rising prices?

 

Chief economist Huw Pill has hinted that further rate hikes are possible, as the Bank renewed its vow to pull price inflation back towards its target of 2%.

 

In a new speech, Pill explained that the Bank’s focus is on reducing prices and making life more affordable again.

 

As measured by the Consumer Prices Index (CPI), price inflation in the UK reached 9.1% in the twelve months to May, its highest rate in 40 years.

 

In response to rising prices, the Bank of England has hiked interest rates to 1.25%, their highest in 13 years.

 

The Bank’s Monetary Policy Committee has voted to increase interest rates at its five last meetings.

 

Mr Pill explained that the Bank is willing to adopt a faster pace of monetary tightening in response to rising prices, but its path will depend on economic data.

 

He said, “much remains to be resolved before we vote on our August policy decision.

 

“How I vote on that occasion will be determined by the data that we see and my interpretation of it.”

 

Also speaking about Bank policy, Sir Jon Cunliffe, deputy governor of the Bank of England, told the BBC the Bank would act “forcefully” to ensure high price inflation does not become the “new normal”.

 

The Bank previously forecast price inflation could reach 11% later this year.

 

Rising interest rates is one mechanism central banks use to control rising inflation. However, with the current bout of price inflation primarily driven by international factors such as wholesale energy prices and the Russian invasion of Ukraine, it is questionable whether higher borrowing costs here will be effective.

 

However, higher interest rates could prove damaging to economic growth in the UK at a time when the economy is slowing.

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