BoE chief warns further rate rises are coming - InterestRate.co.uk
Bank of England

BoE chief warns further rate rises are coming

The chief of the UK’s central bank has warned that further interest rate increases are on the cards due partly to a tight labour market. Speaking at a recent conference, Andrew Bailey, the Governor of the Bank of England (BoE), said recent statistics showed that while total wages have jumped 6% over the past year, this has been eaten up by inflation.

He suggested that as long as this situation continued, the likelihood of further interest rate hikes would continue to grow. However, other central bank senior officials have expressed concern that if monetary policy tightening goes too far, it could mean the nation is plunged into an even deeper recession.

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Difficult to predict economic shocks

The BoE chief was asked whether he believed the central bank had failed to act quickly enough in response to soaring inflation.

However, he said a range of issues had hit the UK’s economy and that it had been impossible to predict all of these economic shocks. Some of the problems he highlighted included supply chain issues, the war in Ukraine, the tight labour market, and the fallout from the devastation of the global pandemic.

Bank of England

He said: “It was a very difficult call to make this time last year… with the benefit of hindsight, obviously things would have been different. If we had only had one supply shock, I think the response to that would be very different, where we’ve had this series of supply shocks.”

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The risk of over-tightening

While Bailey has warned of further increases, the central bank’s newest interest rate-setter, Swati Dhingra, said she was very concerned about the impact of over-tightening.

Speaking to the Treasury Committee, she said: “You could think of getting into a much deeper, much longer recession if rates continue to rise because there is already about a fairly sizeable chunk of the previous rate rises that have got to take effect in terms of what they do to GDP. There is a risk of over-tightening, and that’s the thing I am worried about at this point.”

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She also said that a deep recession would take its toll on younger workers, as past figures show that those entering the labour market during a downturn end up on “perpetually lower wages”.

UK Finance

The spate of rate hikes that have taken place over the past year has already taken its toll on household finances. Many of those with mortgages to pay have been left struggling to keep up with repayments. This has been made worse by ongoing issues such as soaring energy costs and food prices. Further interest rate hikes will put even more financial pressure on many already in a desperate situation.