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The Bank of England, faced with runaway inflation, must keep hiking interest rates regardless of the impact on the economy and the cost-of-living crisis, a BoE policymaker warned on Friday.
Dave Ramsden, a member of the central bank's Monetary Policy Committee, also defended the BoE's recent decision to snap up UK bonds and halt markets turmoil sparked by the UK's tax-slashing budget.
‘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 2.0% target,’ Ramsden told a London securities conference.
The comments came after the BoE last month ramped up its key interest rate by a half-point to 2.25%.
Ramsden was in the minority calling for a larger 0.75-percentage-point hike.
Rising rates dampen inflationary pressures but they also push up loan repayments for consumers and companies alike, thereby exacerbating the UK's cost-of-living crisis.
‘We are acutely conscious that, for many, our monetary policy actions are adding to the difficulties caused by the current situation,’ Ramsden added Friday.
The BoE, like central banks around the world, has hiked interest rates a number of times this year in a bid to cool decades-high inflation.
UK inflation eased in August to 9.9% after striking a 40-year peak of 10.1% in July.
However, it remains almost five times the level of the BoE's official government-set target of 2.0%.
And the institution predicts inflation will peak at close to 11% this year.
Global consumer prices have galloped to their highest levels in decades on rampant rises for energy and food in the wake of Russia's war on Ukraine.
Ramsden meanwhile made reference on Friday to the BoE's surprise move last week to jump into bond markets.
Its emergency purchases of UK government bonds helped to bring down yields and shore up the pound.
‘This is not a monetary policy operation, although it involves buying assets,’ noted Ramsden on Friday.
‘I think of it as an operation designed to buy time threatening severe disruption of core funding markets and consequent widespread financial instability.’
Britain's recent mini-budget was widely criticised, including by the IMF, over fears that government debt will balloon to pay for tax cuts.
The budget sent UK bond yields soaring and the pound tumbling to a record low against the dollar.
Fitch this week lowered the outlook for its credit rating for British government debt from stable to negative, citing the impact of debt-fuelled measures from new Prime Minister Liz Truss.
source: AFP
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