‘We must keep raising rates despite the pain’: warns Bank of England deputy

Interest rates should continue to rise even as the increases add to the painful strain on millions of households and small businesses, a Bank of England deputy governor said yesterday.

Dave Ramsden, a “hawk” who has supported even higher hikes at meetings of the Monetary Police Committee (MPC) that sets rates, says it must take action to bring inflation back to 2 percent.

Ramsden said: ‘Millions of households and businesses are experiencing major difficulties as a result of the cost of living crisis. I am well aware that our actions add to the difficulties.’

He added: “Challenging as the short-term implications for the UK economy may be, the MPC must take the necessary monetary policy steps to bring inflation back to its target of 2 per cent sustainably over the medium term. .’

Fellow ratemaker Catherine Mann said there was little monetary policy to help households struggling with rising energy and food prices.

Ramsden’s comments boosted the pound, which was already strengthening against the dollar as minutes from the US Federal Reserve meeting pointed to a slower pace of rate hikes in America.

Sterling added as much as a penny to $1.2153, a three-month high. It rose by more than half a cent against the euro to €1.1662.

The Bank of England has raised its benchmark interest rate eight times since December, from 0.1 percent. up to 3 percent. and is expected to add another 0.5 percent next month.

It wants to cool rampant inflation, which recently hit a four-decade high of 11.1 percent amid rising energy costs and pressure on wages amid record job vacancies.

But with the UK already in recession and unemployment expected to rise, the increases are hurting mortgage holders and businesses whose loan repayments are rising.

Some more ‘moderate’ members of the MPC fear that hikes will go too far and result in a deeper recession.

But Ramsden said history has shown “the damage to households and businesses that would result if high inflation continued.” He said yesterday that he was “not yet confident” that some of the inflationary pressures were starting to ease.

“I expect that further increases in bank rates will be necessary… if the outlook points to continued inflationary pressures, then I will continue to vote to react strongly,” he added.

But he also made it clear, in a speech at Kings College London, that if the threat of inflation eases, he would consider cutting interest rates.

His comments come after Jeremy Hunt’s autumn statement last week announced £55bn in tax increases and austerity, partly intended to tackle inflation.

Still, Ramsden said that as many of the Chancellor’s measures will not be implemented until April 2025, they would have “very little effect”.

He added that Britain’s international reputation had not yet fully recovered from the financial turmoil that Kwasi Kwarteng’s mini-Budget unleashed in September – echoing recent comments from Banking Governor Andrew Bailey that the UK’s position had “taken a hit got’.

That led to a sell-off in the UK bond market, which only stabilized after a £65bn Bank of England intervention.