The Bank of England must continue raising interest rates to bring inflation back to 2% even if it means more hardship for households, Deputy Governor Dave Ramsden said.
Citing concerns about the tight labour market and high inflation expectations, Ramsden said his bias was for further tightening.
The BOE has raised rates eight times since December to 3%, with Ramsden in favor of a historic three quarter point increase this month.
With inflation at 11.1%, more then five times the target level, he said: “However challenging the short term consequences might be for the UK economy, the MPC must take the necessary steps in terms of monetary policy to return inflation to achieve the 2% target sustainably in the medium term.”
Speaking at the Bank of England Watchers’ conference in London, he added that the big fiscal tightening announced in the autumn statement “will have very little effect” on rates as the vast majority of the measures do not come into effect until the end of the BOE’s three-year policy-setting horizon.
Ramsden expressed scepticism about the depth of recession that the BOE is predicting and said he is doubtful that unemployment will rise to 5% from current levels of 3.6%.
If his outlook does not play out, and inflation ceases to be a concern, he “would consider the case for reducing Bank Rate, as appropriate.”
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