A week after the Bank of England hinted its series of rate hikes might be reaching its peak, policymakers for the Bank of England disagreed about where interest rates need to go to tame inflation, with Governor Andrew Bailey emphasizing the unpredictability of the outlook.
Monetary Policy Committee members struck contrasting notes when addressing the Treasury Committee of parliament about the dangers posed by an inflation rate that peaked at a 41-year high of 11.1% in October before falling to 10.5% in December – still more than five times the BoE’s 2% target.
Jonathan Haskel, an external MPC member, told the committee that he is ready to “act forcefully” against persistent inflation.
Silvana Tenreyro, who opposed half-point increases in interest rate in December’s meeting, was on the opposing side of the argument. She claimed that interest rates were already too high and that she may consider voting for a reduction in future meetings.
The Bank of England raised interest rates for the tenth time in a row, raising the bank rate to its highest level since 2008 at 4% from 3.5%, as other central banks have done in an effort to lessen the risks from the inflation surge. However, the Bank of England is also concerned about a recession this year, which is anticipated to be modest but long-lasting in most other nations.
On the other hand, financial markets and economists now reckon the Bank of England will raise rates by just 0.25 percentage points more. It will happen in the month of March, they anticipated.
Before the Bank of England’s most recent meeting, the markets believed that rates were more likely to peak at 4.5% in the mid of 2023.
Andrew Bailey said that the inflation tide appeared to have turned but reiterated the risks to the BoE’s main forecasts that it will be below target by mid-2024.
“I am very uncertain, particularly about price-setting and wage-setting in this country. We have got the largest upside skew in our forecasts that we have ever had on inflation,” Andrew Bailey said.