Bank of England Governor hints at interest rate rise

With the Bank of England forecasting that inflation in the UK will surpass 4% later in the year, twice its formal target of 2%, the Bank of England governor has hinted that an interest rate rise could soon be on the cards.

According to reporting by Reuters, Andrew Bailey told an online discussion panel of consultative companies on Sunday that, “Monetary policy cannot solve supply-side problems, but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectation”.

Bailey’s comments have been seen as one of the strongest signs yet that the Bank is preparing to act.

The Consumer Prices Index (CPI) rose by 3.2% in the 12 months to August 2021, up from 2.0% in July.  This month on month increase was the largest ever recorded increase in the Consumer Prices Index since it was first established in 1997.

The current rise in inflation has largely been attributed to the rise in global energy prices, but there is also concern current labour market shortages may lead to a spiral of wage push inflation.

Interest rates are formally set by a monthly meeting of the Bank of England’s Monetary Policy Committee, one which has been independent of government since 1997.

Any increase in interest rates, which have been at historic lows since the start of the coronavirus pandemic, is likely to prove politically unpopular, not least as their impact feeds through to the household finances of those on variable rate mortgages.