Bank of England will do ‘whatever is necessary’ to fight spiraling inflation

The Bank of England will do ‘whatever is necessary’ to prevent inflation from taking root in the UK economy, its second-in-command said today, as it eyes a record hike in interest rates interest.

Deputy Governor Sir Jon Cunliffe told BBC Radio 4’s Today program that the Bank was ready to act after inflation hit a 40-year high of 9.1% in May – forecasters expecting it to top 11% by October.

And the Bank’s top economist, Huw Pill, said separately in a speech that interest rates may need to rise at a faster pace to contain “uncomfortably high” inflation.

It indicates the possibility that the Bank could raise rates by half a point to 1.75% in August, from 1.25% currently, which would mark the biggest hike ever by the Bank since its independence in 1997.

The Bank has raised rates at five consecutive meetings to tackle the recent jump in inflation as the cost of living crisis tightens the purse strings of Britons.

But so far each hike has been a quarter point, with the Bank taking a gradual approach to offset the risk of stifling economic growth.

Bank of England Deputy Governor Sir Jon Cunliffe (pictured) told BBC Radio 4’s Today program that the Bank was ready to take action after inflation peaked at 9 .1% in 40 years in May – with forecasters expecting it to top 11%. by October.

Interest rate setters have signaled that bigger hikes could be on the cards, as the Bank of England is looking to do "requisites" to prevent runaway inflation from becoming long term.

Interest rate setters have signaled that bigger hikes could be on the cards as the Bank of England seeks to do ‘whatever is necessary’ to prevent the inflation spike from becoming long-term .

Sir Jon said the Bank faced a difficult balancing act, adding: “We will do whatever is necessary to ensure that this period of inflation runs through the economy, it does not leave us with a problem of ‘persistent inflation generated at the national level’.

“We will act to make sure that doesn’t happen.”

But he said: ‘What we expect is that the cost of living squeeze will actually affect people’s spending and that will start to chill the economy.

“We can see signs that the economy is already slowing down.”

It comes after the Bank said in June that it would “act forcefully” to combat the threat of long-term high inflation.

Mr Pill – who took over from Andy Haldane in the role last September – told a central banking conference hosted by the King’s Business School that the pledge “reflects both my desire to adopt a tightening pace faster than that implemented so far in this tightening cycle, while simultaneously emphasizing the conditionality of such a change of pace to the flow of new data and analysis”.

He stressed that “much remains to be resolved before we vote on our August policy decision”.

“How I vote on this occasion will be determined by the data we see and my interpretation of it,” he said.

Fears are growing that a recession – as defined by two consecutive quarters of falling output – could occur as the cost crisis hits consumer spending.

Economists expect the economy to contract in the second quarter and there are fears that output could plunge at the end of the year when soaring energy prices lead to another lifting of the price cap in October. .

The Bank has already warned that inflation is expected to exceed 11% in October.

But Mr Pill echoed Sir Jon’s concerns about the threat to growth, adding: “The MPC (Monetary Policy Committee) must take a ‘narrow path’ in managing these risks.”

It comes after the BoE today warned that the outlook for the economy has “deteriorated significantly”.

In a grim update, the Bank said households were facing a serious squeeze on their finances – and warned of a wave of business collapses.

As families struggle to afford the rising cost of basic necessities, the Bank has also warned that soaring house prices may be coming to an end.

Danni Hewson, financial analyst at investment platform AJ Bell, said: “A long, cold winter awaits in the wings.”

In its latest Financial Stability Report, the Bank said: “The economic outlook for the UK and the world has deteriorated significantly.

“Following Russia’s illegal invasion of Ukraine, global inflationary pressures have intensified sharply.

Energy prices soared as Western countries shunned Russian oil and gas exports. And food prices are also skyrocketing, as Russia and Ukraine are major exporters of essentials such as wheat and sunflower seeds used in cooking oil.

There's a long, cold winter waiting in the wings that can't be hidden under bushels of tinsel and pretty lights.

There’s a long, cold winter waiting in the wings that can’t be hidden under bushels of tinsel and pretty lights.

Today, central banks around the world have been forced to raise interest rates in a bid to encourage households and businesses to save rather than spend, in the hope that this will bring prices down.

But it is also hurting the Covid recovery, and several economists are now predicting that the UK will plunge into a recession in the coming months.

The Bank of England said there were a number of risks ahead, including developments in the Russian-Ukrainian conflict, which could “adversely affect the UK’s financial stability”.

So far, overall household debt relative to income has remained broadly stable.

But the Bank thinks the worst is yet to come. He added: “Rising costs of living and interest rates will put increased pressure on UK household finances in the months ahead.”

Holders of fixed-rate mortgages, which are currently protected against rising interest rates, could face a shock when they next refinance.

And businesses that borrowed during the pandemic when lockdowns closed their stores must now repay those loans — at a time of skyrocketing costs and rising interest rates.

Energy prices have been pushed up by Russia’s invasion of Ukraine and more recently by strikes in Norway.

This is proving difficult not just for households – who are set to see their bills rise again when energy regulator Ofgem revises the price cap in October – but also for businesses.

Nearly a third of small and medium-sized businesses don’t have enough cash to last a week, according to the Bank’s report.

But these small businesses account for around half of jobs in the UK – jobs that could be lost if businesses struggle to keep their heads above water.

Ms Hewson said: ‘Right now the long clear days and warm temperatures are not only reducing energy costs but helping to propel at least some extra traffic on the main streets.

“But there’s a long, cold winter waiting in the wings that can’t be hidden under bushels of tinsel and pretty lights, especially since the crates should be lighter.”

The Bank said the pressures of rising costs and higher interest rates “are likely to lead to business failures.”

But street lenders were well prepared for an economic storm, the Bank added, as it encouraged them to continue lending to businesses and households wherever possible to keep the economy afloat.

Threadneedle Street officials have even pushed ahead with plans to boost banks’ cash reserves, designed to be built up in good times to give lenders some breathing room in a crisis.

The cushion requirement, which was reduced to zero during the pandemic to encourage banks to lend, will now be increased to 2% of a bank’s assets.

But it is also a sign that the Bank of England is strengthening the UK’s defenses in anticipation of an economic storm.