‘We must keep raising rates despite the pain’: Household squeeze set to continue as Bank of England deputy proposes to cut inflation to 2%
Interest rates must keep rising even if the hikes add to painful pressure on millions of households and small businesses, a Bank of England deputy governor said yesterday.
Dave Ramsden, a ‘hawk’ who backed even higher hikes at Monetary Policy Committee (MPC) meetings, said he needed to act to bring inflation down to 2%.
Ramsden said: “Millions of households and businesses are in dire straits due to the cost of living crisis. I am fully aware that our actions make the difficulties worse.
Dave Ramsden, a ‘hawk’ who backed even higher increases at rate-setting meetings earlier this year, warned the Bank ‘must take the necessary steps’ to bring inflation down to 2%
He added: “As difficult as the short-term consequences for the UK economy may be, the MPC must take the necessary steps in terms of monetary policy to bring inflation back to the 2% target in a sustainable way to the medium. term.”
Catherine Mann, who sets rates, said monetary policy could do little to help households struggling with soaring energy and food prices.
Ramsden’s comments boosted the pound, already strengthening against the dollar as US Federal Reserve meeting minutes indicated a slowing pace of rate hikes in America.
The pound added up to one cent to $1.2153, a three-month high. It was up more than half a cent against the euro at €1.1662.
The Bank of England has raised its benchmark interest rate eight times since December, raising it by 0.1%. at 3 percent. and is expected to add another 0.5% next month.
He wants to rein in runaway inflation, which recently hit a four-decade high of 11.1% amid soaring energy costs and pressure on wages amid record levels of job vacancies.
Yet, with the UK already seen as in recession and unemployment expected to rise, the rises are inflicting hardship on mortgage holders and businesses with rising loan repayments.
Some more “dovish” members of the MPC fear the increases will go too far and lead to a deeper recession.
But Ramsden said history had demonstrated “the damage to households and businesses if high inflation persists”. He said yesterday he was “not yet convinced” that some of the inflationary pressures had started to ease.
“I expect further increases in the Bank Rate to be needed…if the outlook suggests more lingering inflationary pressures, I will continue to vote to respond forcefully,” he added.
But he also made it clear, in a speech at Kings College London, that if inflation threats faded he would consider cutting rates.
His remarks come after Jeremy Hunt’s autumn statement last week announced £55billion in tax hikes 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 yet to fully recover from the financial turmoil unleashed by Kwasi Kwarteng’s mini budget in September – echoing Bank Governor Andrew Bailey’s recent remarks that the UK’s position had “taken a hit”.
This prompted a sell-off in the UK bond market which only stabilized after a £65 billion intervention from the Bank of England.