The Bank of EnglandBank of England is leaving all options on the table, including a bigger 50 basis-point interest rate rise to tackle 40 year high inflation, according to Andrew Bailey, central bank governor.
Bailey told an audience of central bankers that rate-setters would leave the door open to more aggressive monetary tightening despite the gradual rise of rate this year.
Bailey told the European Central Bank's annual forum in Sintra, Portugal that it leaves options on the table and that is very deliberate. I want people to take the message, as we respond to the inflation shock, that we want to have options on the table. There will be circumstances when we have to do more, Bailey said.
The Bank has raised interest rates by 25 basis points at its past five meetings, taking the UK's base rate to 1.25 per cent, the highest since 2009. An increase in inflation has raised the possibility of more aggressive 50 basis-point rises to contain price pressures, despite the tightening of the monetary tightening this year.
Bailey said he had not yet decided whether to vote for a 50 point rise, after three of the nine strong monetary policy committees supported bigger increases in the two most recent rate-setting meetings. The Bank will make its next rate decision in early August.
Consumer prices inflation in Britain is 9.1 per cent, the highest since 1982, and is expected to peak above 11 per cent this year, making Britain the worst-hit developed world economy. Bailey said double-digit inflation was a result of the energy price market in the UK. Households have faced a huge rise in bills in October, with much higher bills coming in October.
He said that if inflation is more persistent, then we will have to act more forcefully. The pound has lost more than 10 per cent against the dollar this year, adding to inflationary pressures by raising the price of imported goods. After more than a decade of ultra-low interest rates and monetary incentives to tackle inflation, the world s central banks have made a radical reversal.
Christine Lagarde, president of the European Central Bank, said : "I don't think we will go back to the world of low inflation. Policymakers have come under fire for not predicting how much inflation would rise after Covid 19 lockdown measures were lifted. Jay Powell, chairman of the US Federal Reserve, admitted that we now understand how little we know about inflation.