‘We must keep raising rates despite the pain’: Squeeze on households set to continue as Bank of England deputy bids to bring inflation back down to 2%
Interest rates must keep rising even though the hikes are adding to the painful squeeze on millions of households and small firms, a deputy governor of the Bank of England said yesterday.
Dave Ramsden, a ‘hawk’ who has backed even higher hikes at rate-setting Monetary Police Committee (MPC) meetings says it has to act to bring inflation back to 2 per cent.
Ramsden said: ‘Millions of households and businesses are experiencing great hardship as a result of the cost of living crisis. I am acutely conscious that our actions are adding to the difficulties.’
Dave Ramsden, a ‘hawk’ who has backed even higher increases during rate-setting meetings earlier this year warned the Bank ‘must take the necessary steps’ to bring inflation back to 2%
He added: ‘However challenging the short-term consequences might be for the UK economy, the MPC must take the necessary steps in terms of monetary policy to return inflation to the 2 per cent target sustainably in the medium term.’
Fellow rate-setter Catherine Mann said there was little monetary policy could do to help households struggling with soaring energy and food prices.
Ramsden’s comments boosted the pound, already strengthening against the dollar as minutes from the US Federal Reserve meeting pointed to a slower pace of rate hikes in America.
Sterling added as much as a hundred to $1.2153, a three-month high. It rose by more than half a hundred versus the euro to €1.1662.
The Bank of England has hiked its benchmark interest rate eight times since December, taking it from 0.1 per cent. to 3 per cent. and is expected to add another 0.5 per cent next month.
It wants to cool rampant inflation, which recently hit a four-decade high of 11.1 per cent amid soaring energy costs and pressure on wages amid record job vacancy levels.
Yet with the UK already thought to be in recession and unemployment predicted to rise, the hikes are inflicting pain on mortgage holders and firms whose loan repayments are rising.
Some more ‘dovish’ members of the MPC fear increases could go too far and result in a deeper recession.
But Ramsden said history demonstrated ‘the damage to households and businesses that would result if high inflation persisted’. He said yesterday he was ‘not yet confident’ that some of the inflation pressures had started to ease.
‘I expect that further increases in Bank rate are going to be required… if the outlook suggests more persistent inflationary pressures then I will continue to vote to respond forcefully,’ he added.
But he also made clear, in a speech at Kings College London, that if inflation threats fade he would consider cutting rates.
His remarks come after Jeremy Hunt’s Autumn Statement last week announced £55billion worth of tax rises and spending cuts designed in part to tackle inflation.
Yet Ramsden said that since many of the Chancellor’s measures will not be enacted until April 2025, they would have ‘very little effect’.
He added that Britain’s international reputation had not yet fully recovered from the financial turmoil unleashed by Kwasi Kwarteng’s mini-Budget in September – echoing recent remarks by Bank Governor Andrew Bailey that the UK’s standing had ‘taken a knock’.
That prompted a sell-off in the UK bond market which only stabilized after a £65billion Bank of England intervention.