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United Kingdom: To fight inflation, the BoE can raise its rates quickly

United Kingdom: To fight inflation, the BoE can raise its rates quickly

Governor Andrew Bailey is signaling that the Bank of England is ready to raise rates by more than 0.25 basis points.

The Bank of England (BoE), facing the highest inflation among the G7 countries, may raise its rates by more than 0.25 basis points, its governor Andrew Bailey said on Tuesday.

If we see evidence of “sustainability” of inflation over the longer term, “we will act aggressively. We want to make it clear that options other than a 0.25 point hike are on the table,” Mr. Bailey said at an event organized by the official forum of monetary and financial institutions.

The BoE estimates inflation, already at a 40-year high of 9.1%, may rise to more than 11% by the end of the year, but expects it to return to normal. Its target is 2% in two years.

“Our mission is to reduce inflation to 2% in a sustainable way and there is no objection to this,” said Mr. Bailey insisted.

For now, the BoE believes inflation is due to the Russian invasion of Ukraine and a spike in European gas prices.

Mr. Despite Bailey’s clarification, his speech suggests that the strength of inflation takes precedence over growth.

By raising its rates, the BoE could actually weigh on economic activity, which has already begun to slow, notably the fall in retail sales volumes in June.

The BoE was one of the first central banks to raise its rates in December, and its key rate currently stands at 1.25%.

The central bank, which will announce its monetary policy decision on August 3, estimates that the peak in inflation will coincide with an increase in regulated energy prices in the United Kingdom later this year.

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