Bank of England Governor Andrew Bailey has signaled that the Bank of England is gearing up to increase interest rates.
The central bank is considering raising interest rates for the first time since the onset of the coronavirus crisis due to increasing inflation risks.
He believes the surge in energy prices raises the risk of higher inflation expectations.
He told Reuters that the recent jump in inflation will be temporary, but that the crisis around energy supply will make its climb last longer.
Bailey argued that while monetary policy cannot solve supply-side problems, the Bank of England will have to act if they see a risk to both medium-term inflation and to medium-term inflation expectations.
During an online panel discussion organised by the Group of 30 consultative group, he said, “That’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act. But of course, that action comes in our monetary policy meetings.”
The Bank of England has forecast that Britain’s inflation rate will go over four percent, more than double its target, as the world economy reopens from its COVID-19 lockdowns.
This could cause shortages of supplies and staff, while the price of energy soars.
Investors are now speculating that the Bank of England might become the first of the world’s biggest central banks to raise rates, later this year or early in 2022.