The Bank of England has warned of higher interest rates than expected next month.
Speaking in Washington this morning, the Bank of England governor Andrew Bailey said: “As things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
He added that the Bank “will not hesitate” to raise interest rates to curb inflation.”
The bank previously predicted the rate of inflation would peak at 11 per cent in October.
The Bank is due to announce its next decision on interest rates on 3 November and many investors think it will either raise them from their current level of 2.25 per cent to 3 per cent or possibly 3.25 per cent, both of which would be much bigger moves than usual.
Speaking at the event, Mr Bailey referencing the market turmoil following the government’s mini-Budget, added: “UK financial markets have experienced some violent moves in the last few weeks particularly at the long-end of the government debt market.
“This has put the spotlight on flaws in the strategy and structure of one important part of a lot of pension funds. The Bank of England has had to intervene to deal with a threat to the stability of the financial system, our other core objective.”
It comes as Liz Truss’s new chancellor Jeremy Hunt has said taxes will rise and warned of “difficult” spending cuts ahead, in an extraordinary series of interviews just hours after taking up the post.
He also refused to commit to the prime minister’s pledged 1p cut in income tax and to raise defence spending to 3 per cent as he admitted that “mistakes” were made in last month’s mini-Budget.
And he suggested the planned 1p cut to income tax could be dumped. He “very much” hoped the government could keep the measure, he said, but would not make a decision before he had looked at everything in the round.
He also appeared to junk Ms Truss’s pledge to increase defence spending to 3 per cent, saying that would depend on the state of the economy.
He refused to get into specifics on taxes or to commit to benefits rising in line with inflation, although he said a number of times that his was a “compassionate Conservative government”.
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