Bank of England governor Andrew Bailey has hinted that interest rates may remain higher for longer because of inflation. Mr Bailey, speaking at a conference in Portugal, said: “The market, I don’t think, thinks we’re nearly done at the moment. They’ve got a number of further increases priced in for us. My response to that would be: well, we’ll see.”
The Bank of England (BoE) hiked rates last Thursday, a day after the Office for National Statistics revealed Consumer Prices Index inflation had only fallen to 8.7 percent in May, compared to the 8.4 percent that had been expected.
Mr Bailey said he thought it was better to increase the Bank’s base rate from 4.5 percent to five percent in one go rather than to raise it in two steps.
He said: “The cumulative data both particularly on the labour market, and on the inflation release, to us showed clear signs of persistence (and) caused us to conclude that we had to make really quite a strong move at that point. It was justified.”
The BoE governor added: “My own view on that was if we were really of the view that we were going to do 25 (bps) and then, we were really baked in for another 25, based on the evidence we’d seen, it was better to do 50.”
London stocks on Wednesday shrugged off concerns about further interest rate hikes and a softer performance on Wall Street.
Gains by software firm Sage and financial stocks helped to buoy the FTSE to a second positive trading session.
The FTSE 100 moved 0.52 percent, or 39.03 points, higher to finish at 7,500.49.
Other major European markets remained positive in the face of the economic backdrop with Germany’s Dax index increasing by 0.64 percent while France’s Cac 40 closed up 0.98 percent.
Meanwhile, sterling slid against the strong dollar, as US traders prepared for further interest rate hikes.
The pound was down 0.83 percent to 1.264 US dollars and had decreased 0.39 percent to 1.158 euros at market close in London.
Separately, Work and Pensions Secretary Mel Stride on Wednesday said banks have questions to answer about how quickly interest rate rises are being passed to savers.
Mr Stride, speaking to LBC, said: “There’s certainly a question to be asked about the speed at which banks pass on the benefits of these interest rates. That’s a way of saying it’s definitely something to be looking at.”
The former Commons Treasury Committee chairman said: “The Chancellor (Jeremy Hunt) has had the banks in for some very serious conversations about this. The Financial Conduct Authority… also oversees that sector and is looking at exactly those kinds of issues.
“So it is something that’s right up there on the Treasury’s agenda at the moment.
“I think the general feeling is that there is a question mark hanging over whether they are passing on these benefits to savers quickly enough.
“And what I’m reassuring your listeners of is that we are absolutely looking at that.”
Mr Stride also expressed sympathy for Mr Bailey, who has been criticised for failing to bring down Britain’s stubbornly high inflation.
He also suggested the Bank may have moved too slowly on inflation. He said: “I have great sympathy with Andrew Bailey. The biggest challenge that the bank has found is uncertainty.”
But he told LBC: “History might judge, and perhaps is not for me on your radio show to speculate on this, but history might judge that they could have moved a bit earlier.
“But let’s see – I think the jury is a little bit out.”
