Bank warns interest rates to rise by ‘as much as needed’ to rein in inflation

The Bank of England today warned it is ready to hike interest rates “by as much as needed” to rein in inflation.

But governor Andrew Bailey scotched suggestions that the rate-setting Monetary Policy Committee could hold an emergency meeting to impose an immediate hike, insisting that any change would come at theirscheduled meeting in November.

The warning came amid panic in the markets over Friday’s mini-budget, which sparked a sharp fall in the value of the pound, which touched a record low a little above $1.03 against the US dollar in early trading today.

Traders were spooked by the prospect of chancellor Kwasi Kwarteng’s unfunded £45bn tax giveaway stoking inflation.

Minutes after markets closed, Mr Bailey issued a statement making clear the MPC, which he chairs, is ready to act to bring price rises back under control.

Mr Bailey said that the Monetary Policy Committee (MPC) would discuss the impact of the Chancellor’s new mini-budget when it meets again in early November – quashing speculation that the Bank might announce emergency measures this week.

“As the MPC has made clear, it will make a full assessment at its next scheduled meeting of the impact on demand and inflation from the government’s announcements, and the fall in sterling, and act accordingly,” he said.

“The MPC will not hesitate to change interest rates by as much as needed to return inflation to the 2 per cent target sustainably in the medium term.”

The statement came minutes after Mr Kwarteng announced he will make a statement in November setting out new fiscal rules for the government, after the rules he inherited from predecessor Rishi Sunak were torn up on Friday.

Crucially, he also revealed that the government’s spending watchdog the Office for Budget Responsbility will be allowed to publish its assessment of the impact of his changes alongside the statement. The OBR was blocked from doing so last Friday on the grounds that the chancellor’s package was not a full-blown Budget.

With inflation currently running at 9.9 per cent and interest rates the Bank’s only lever for reducing it, Mr Bailey’s ambition to return it to the 2 per cent target over the medium term implies a readiness to introduce further sharp rises to the base rate.

And his comment that the key rate will be allowed to increase by “as much as needed” will fuel expectations that it could reach levels even higher than the 6 per cent forecast by some traders - pushing up mortgages and the cost of borrowing.