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‘There is no alternative’ Bank of England hands tied | City & Business | Finance

The latest price cap announcement, the penultimate of 2022, will cause a tidal wave of costs that could “wipe out revenue”, charities have warned. Britons need urgent help from the UK authorities to avoid falling into poverty this year as inflation reduces their purchasing power. The Bank of England has faced widespread criticism for not taking more action, with successive interest rate adjustments only adding to the misery.

The rate currently sits at 1.75, after rising 0.50% in early August, and could reach 4% next year, analysts have suggested.

Ultimately, this drove up the prices of mortgages and loans, but experts say this is a necessary evil.

Speaking to Express.co.uk, Prof Joe Nellis, professor of global economics at the Cranfield School of Management, said the bank‘s hands were tied.

He said officials had to keep adjusting the rate or risk devaluing the pound.

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Professor Nellis said: “Interest rates are the only instrument the Bank of England has to control the economy – there is no alternative.

“They have no choice but to follow the market and keep raising interest rates or risk weakening the pound.

“If they don’t raise interest rates in line with other major economies, the UK’s situation will get worse.

“If the value of the pound falls, inflation rises as import prices soar.”

“Continued inflation is putting pressure on domestic concerns and for the Bank of England to be seen as doing nothing would be a total failure.”

Since adjusting interest rates is the bank’s main tool to manage inflation, it may need to act more quickly in the coming months.

Economists and markets have suggested that Bank of England officials should keep pace with the US Federal Reserve to contain inflation until 2023.

Markets suggest the rate could reach 4.2% next year, overtaking the US central bank.

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Bank employees said the inflation rate is expected to start falling in 2023.

As Ofgem’s recent announcement shows, energy prices are likely to continue to rise, but they are likely to reach a limit.

The bank said prices for energy and imported goods are “unlikely” “to rise as rapidly as they have recently.”

With production difficulties faced by companies also beginning to ease, the bank added that lower demand “should also bring prices down”, ideally leaving inflation at 2%.