Key facts
- The Bank of England may need to raise interest rates if inflation pressures continue to build, Deputy Governor Dave Ramsden said.
- Ramsden was part of the 6-3 majority on the BoE's Monetary Policy Committee who voted to keep interest rates on hold in September.
- The Bank of England has maintained its Bank Rate at 3.75%.
- The current inflation rate is 3.1%, with a target of 2%.
- Conflict in the Middle East has disrupted global energy supplies, leading to increased prices and contributing to inflation.
The Bank of England may need to increase interest rates if inflation pressures continue to strengthen, Deputy Governor Dave Ramsden said on Monday. His remarks echoed the message from the September policy decision, where the Monetary Policy Committee voted 6-3 to keep interest rates at 3.75%. Ramsden stated that while the current policy stance remains restrictive, a case could be made for increasing Bank Rate if upside pressures on the inflation outlook persist. This position aligns with the Bank's recent assessment that higher global energy costs, exacerbated by the conflict in the Middle East, are disrupting supply chains and pushing up prices. The Bank of England has maintained its benchmark interest rate at 3.75% for the sixth consecutive meeting. Officials have raised their inflation forecast, predicting it will be slightly above 4% at the start of next year, and warned that household energy bills are expected to rise substantially further in January. Governor Andrew Bailey noted that while the direct impact of higher energy prices on wider inflation is still being assessed, persistent volatility increases the likelihood of a rate hike to ensure inflation returns to the 2% target. In contrast to the European Central Bank and the US Federal Reserve, the BoE has not raised rates since the start of the Iran war, partly due to its already restrictive policy stance. However, financial markets are anticipating potential rate increases next year. Governor Bailey indicated that a reduction in interest rates would depend on an end to the conflict in the Middle East and a return of energy prices to pre-conflict levels. Despite inflationary concerns, the Bank of England reported that the UK economy has shown more resilience than anticipated, revising its growth forecast for the July-September period from 0.1% to 0.4%. The Bank also noted that the spillover effect of higher energy costs into other areas of the economy has been limited, leading to a revised forecast of 4% for food price inflation by year-end, down from its previous estimate of 6-7%.