Bank of England Governor Warns of Higher-Than-Expected Interest Rate Hike

Governor of the Bank of England Andrew Bailey attends a meeting of the IMFC (International Monetary and Financial Committee) at the IMF and World Bank Annual Meetings at IMF headquarters in Washington on Oct. 14, 2022. Drew Angerer/Getty Images

Bank of England (BoE) Governor Andrew Bailey on Saturday suggested the central bank may set interest rates higher than previously expected next month.

Giving a speech at the Group of Thirty’s annual International Banking Seminar in Washington, Bailey said the bank “will not hesitate to raise interest rates to meet the inflation target.”

“And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August,” he added.

The announcement of the government’s medium-term fiscal plan was originally pencilled in for Nov. 23, almost three weeks after the BoE ’s Monetary Policy Committee (MPC) is scheduled to meet over interest rates on Nov. 3. The date has since been brought forward to Oct. 31.

Speaking on Saturday of the upcoming statement, newly appointed Chancellor of the Exchequer Jeremy Hunt told ITV it would “pretty much” be a “proper” budget.

Hunt did not give any details of what may be included, but told media outlets that there will be some “very difficult decisions ahead” including some tax rises and spending cuts.

Bailey said the MPC will “respond to all this news” at the next meeting, by which the committee members will “know the full scope of fiscal policy.”

He stressed that the bank’s emergency bond-buying programme, which operated between Sept. 28 and Oct. 14, was a “strictly temporary” measure to “ease a critical threat to financial stability,” and is separate from the MPC’s tightening of monetary policy.

Responding to criticisms that global central banks, including the BoE, have been too slow to control inflation in the past year, Bailey defended the BoE’s response, saying it was the correct response to “a single transient supply shock.”

He acknowledged the bank failed to see “a sequence of such shocks to come, without gaps, which invalidated the basis” of the argument that the shocks since the COVID-19 pandemic were transient in nature, but argued the bank couldn’t have predicted a war breaking out.

Answering questions at the seminar, Bailey said he had spoken to the new chancellor on Friday.

Bailey said it would not be appropriate for him to “constrain” Hunt’s options, but said their conversation was “a very clear and immediate meeting of minds on the importance of stability and sustainability.”

Campaigning to be the prime minister amid a looming global financial crisis, Truss ran on a platform of cutting taxes and boosting economic growth.

But after the “mini-budget” she and then-Chancellor Kwasi Kwarteng announced was blamed for triggering a market meltdown and met with fierce backlash from Conservative MPs and opposition parties and pressure from financial institutions including the International Monetary Fund, Truss was forced to sack Kwarteng on Friday night and backtrack on her major campaign promise by reinstating former Chancellor Rishi Sunak’s policy to hike corporation tax from 19 percent to 25 percent in April.