Northern Ireland

Bank of England suggests interest rate change to beat inflation following Sterling's historic tumble

Governor of the Bank of England Andrew Bailey has issued a statement warning that interest rates could rise to return inflation to its two percent target. Picture by Alex Barrett
Governor of the Bank of England Andrew Bailey has issued a statement warning that interest rates could rise to return inflation to its two percent target. Picture by Alex Barrett Governor of the Bank of England Andrew Bailey has issued a statement warning that interest rates could rise to return inflation to its two percent target. Picture by Alex Barrett
By Paul Ainsworth

THE Bank of England has said it "will not hesitate" to change interest rates to tackle inflation following Sterling's fall to its lowest level against the dollar since 1971.

In a statement, governor Andrew Bailey said the bank was "monitoring developments in financial markets very closely in light of the significant repricing of financial assets".

His comments come as the pound fell to a historic low of $1.03 yesterday morning before rebounding to $1.09.

There has been speculation the bank would be forced to increase interest rates by one percent to steady the currency less than a week after it rose to 2.25 per cent.

The tumbling value follows a mini-budget by UK Chancellor Kwasi Kwarteng, who announced the biggest tax cuts for 50 years.

Critics have accused the chancellor's actions as favouring the wealthy while lower income families struggle, but he has warned there is "more to come".

Mr Bailey said the Bank of England's Monetary Policy Committee (MPC) would act to return inflation to a two percent target.

"The bank is monitoring developments in financial markets very closely in light of the significant repricing of financial assets," the governor said.

"In recent weeks, the government has made a number of important announcements. The government’s Energy Price Guarantee will reduce the near-term peak in inflation.

"Last Friday the government announced its Growth Plan, on which the chancellor has provided further detail in his statement today. I welcome the government’s commitment to sustainable economic growth, and to the role of the Office for Budget Responsibility in its assessment of prospects for the economy and public finances.

"The role of monetary policy is to ensure that demand does not get ahead of supply in a way that leads to more inflation over the medium term."

Mr Bailey said the MPC would 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 added: "The MPC will not hesitate to change interest rates as necessary to return inflation to the two percent target sustainably in the medium term, in line with its remit."