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Bank of England must ‘stay on track’ to curb inflation: Deputy governor calls for more rate hikes despite threat of recession
- Dave Ramsden: Big question is ‘how powerful do we have to be’ to fight inflation
- US employment has risen, paving the way for more Fed rate hikes
- Bank has already increased rates from 0.1% to 2.25% and further increases are expected
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The Bank of England must hold its course and continue to raise interest rates despite the looming risk of a recession, the deputy governor warned.
Dave Ramsden said the big question for the central bank was ‘how powerful do we have to be’ in fighting skyrocketing inflation.
The comments came as US job data showed employment rose by 263,000 last month, paving the way for more rate hikes by the country’s central bank, the Federal Reserve.
In red: Dave Ramsden said the big question for the central bank was ‘how powerful do we have to be’ in fighting skyrocketing inflation
The Bank of England has already raised interest rates from 0.1 percent in December to 2.25 percent and further increases are expected.
But members of the monetary policy committee are divided on how fast and far they need to go to get inflation under control.
After voting for a 0.75 percentage point increase last month but losing to colleagues who favored a 0.5 percentage point increase, Ramsden suggested he would vote to continue pressure at next month’s meeting. .
But he admitted: “We are well aware that for many our monetary policy measures contribute to the difficulties caused by the current situation.”
He added: “We know from earlier periods in our history what damage would be done to households and businesses if high inflation persisted.” And he said the market turmoil that followed Chancellor Kwasi Kwarteng’s mini-budget would have a “significant direct effect” on the Bank’s economic forecasts.
Central banks raise interest rates to curb rising prices and encourage people to save rather than spend. But this also slows down economic growth and squeezes the budgets of households with mortgages or other debts, as the cost of borrowing rises.
Major economies are already struggling to maintain production levels as they deal with rising energy prices and the fallout from the Russian attack on Ukraine.
Now central banks have to walk a thin line as they struggle with inflation while trying not to worsen a recession.
This is causing a headache in Germany, which is on the brink of recession, where factory output fell 0.8 percent in August as retail sales slowed and import prices rose.
Franziska Palmas, Europe economist at Capital Economics, said: “We expect the German economy to experience one of the deepest recessions among eurozone countries this winter.”
Still, the European Central Bank (ECB) raised its own base rate by a whopping 0.75 percentage point last month, putting pressure on borrowers in the eurozone.
The Bank of England has failed to take such big steps, but has raised its base rate with a record seven consecutive meetings. Experts have still accused it of acting too late and too slow compared to international counterparts.
Ramsden defended the Bank, saying: ‘It is worth recalling that December last year was less than three months after the end of the UK furlough scheme and when the meteoric rise of the Omicron variant was a major problem. It also took three months for the Fed to start tightening policy in the US and almost seven months for the ECB to start the tightening cycle in the euro area.’