The Deputy Governor of the Bank of England, Dave Ramsden, has indicated that increasing interest rates is the only way to lower inflation. Speaking at the Securities Industry Conference late last week, he said all nine members of the Monetary Policy Committee (MPC) were prepared to take forceful action with regard to interest rates.
Over the past nine months, interest rates have been steadily rising. There have been two bumper rate hikes of 0.5% on top of a series of 0.25% increases, taking the base rate to 2.25%. As a result, many households and businesses are now dealing with increased financial strain due to the higher cost of borrowing. In addition, many mortgage deals have been pulled from the market or repriced at higher rates due to uncertainty around interest rates and the economy.
Despite these issues and fears of a recession, officials from the Bank of England have said that interest rates will have to continue rising because of soaring inflation. Ramsden, one of the nine members of the MPC, also spoke about other pressures on the UK economy, including the Russian invasion of Ukraine and turbulence in the financial markets.
The need to stay on course
According to Ramsden, the MPC has to stay on course when it comes to monetary policy to stand any chance of reducing inflation.
He said: “Unlike earlier inflationary episodes, where we saw more persistence in inflation caused by ineffective policy and policy frameworks, this time we have a monetary policy framework which empowers us to take action. However difficult the consequences might be for the economy, the MPC must stay the course and set monetary policy to return inflation to achieve the 2% target sustainably in the medium term, consistent with the remit given to us.”
While the last two MPC meetings resulted in 0.5% increases to the base rate, Ramsden and two other policymakers had pushed for a more significant increase of 0.75%. The next meeting will be in early November, and there is speculation over whether this will be another bumper rate increase.
Financial turmoil for mortgage holders
For those with variable-rate mortgages and those due to come off fixed-rate deals, the ongoing interest rate hikes are causing financial turmoil. At a time when energy costs are sky-high, food prices have rocketed, and other essential costs have soared, many are now struggling to make ends meet.
Further increases in the base rate will lead to more people facing money problems, with some already making spending cuts to afford their mortgage repayments.