Governor Andrew Bailey has warned that the Bank of England “will have to act” in response to increasing inflation, implying that UK interest rates may be raised shortly.
He did not, however, say when the Bank could raise rates from their current record low of 0.1 percent.
The Bank of England has previously predicted that UK inflation will rise over 4% before dropping when the economy recovers from Covid.
Mr Bailey, on the other hand, believes that rising energy prices will keep inflation higher for longer than originally expected.
Rates are expected to be hiked later this year or early in 2022, according to investors, in order to bring inflation back down to the Bank’s objective of 2%.
Prices have risen by an average of 3.2 percent in the last 12 months, according to the most current data. On Wednesday, more data will be released.
Mr Bailey’s remarks, which were made in an online panel of central bankers, were seen by financial experts as his strongest signal yet that a rate hike might be on the way.
“Monetary policy cannot fix supply-side difficulties,” the Bank governor added, “but it will have to intervene and must act if we identify a danger, notably to medium-term inflation and inflation expectations.”
“That’s why the Bank of England has signaled, and this is another such signal,” he continued.
“But, of course, our monetary policy meetings are where we take action.”
The next meeting of the Bank’s rate-setting Monetary Policy Committee is scheduled for November 4th.
Mr Bailey stated that the demand for employees in the UK was more than projected, and that the number of younger and older people leaving the workforce has increased.
“I am concerned about the increase in labor supply,” he added.