Home news Bank sees rate rise 'likely' if inflation jumps

Bank sees rate rise 'likely' if inflation jumps


The Bank of England has kept interest rates on hold – but warned a rise is “likely” in the “coming months” if inflation continues to surge.

Minutes of the latest meeting of the monetary policy committee (MPC) showed a 7-2 vote in favour of no change this month – keeping rates at their post-Brexit low of 0.25%.
It was being closely watched as the decision was made just days after the Office for National Statistics revealed a leap in consumer price inflation to 2.9% last month from an annual rate of 2.6% in July.
:: Cost of fashion pushes inflation to 2.9%
The Bank has been growing increasingly wary about the threat posed to the economy from higher prices – with inflation above its 2% target.

Video: Cost of fashion pushes inflation to 2.9%

However, the MPC minutes also tempered expectations of a possible interest rate rise by saying it would depend not only on inflation rising further but also the economy maintaining its recent strength.
Other data this week pointed to the lowest jobless rate since 1975 though wage growth remained stubbornly slow at 2.1%.
When the inflation figure of 2.9% is taken into account it means the squeeze on family budgets is intensifying.
Prices have risen because import costs were raised by the post-Brexit vote collapse in sterling’s value.

The currency gained more than a cent against the dollar – back above $1.3350 to fresh one-year highs – after the MPC’s rate deliberations came to light.
It also rallied against the euro, trading back below the €0.89 mark, leaving the pound on track for its best week against the single currency in 10 months.

Video: Carney outlines Brexit hit to economy

The shifts hit the market values of multi-nationals, especially dollar-earners, on the FTSE 100 which was 1% lower in early afternoon trading at 7306 points.
In signalling a growing lack of tolerance for rising prices, the MPC said: ” A majority of MPC members judge that, if the economy continues to follow a path consistent with the prospect of a continued erosion of slack and a gradual rise in underlying inflationary pressure then, with the further lessening in the trade-off that this would imply, some withdrawal of monetary stimulus is likely to be appropriate over the coming months in order to return inflation sustainably to target.
“All members agree that any prospective increases in Bank Rate would be expected to be at a gradual pace and to a limited extent.”
Ben Brettell, senior economist at Hargreaves Lansdown, reacted: “To me, leaving rates where they are makes a great deal of sense.
“Throw a hefty dose of Brexit-related uncertainty into the mix and it’s easy to see why the majority of policymakers see higher rates as an unjustified risk at this stage.”

Source: Sky News