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Interest rate worries played down by Bank of England

The Bank of England has played down worries that interest rates may have to rise as a result of growing levels of inflation.

The BoE’s monetary policy committee yesterday voted 9-0 to keep interest rates steady at their current historic low of 0.1 per cent - the rate they have been at since the start of the pandemic in March 2020. 

There had been fears the Bank may be nervous about consumer price inflation hitting a two year high of 2.1 per cent in the year to May - slightly above the Bank’s own 2.0 per cent target. 

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But the monetary policy committee believes the high inflation will be short lived. 

"Financial market measures of inflation expectations suggest that the near-term strength in inflation is expected to be transitory," the Bank said in a statement.

"Output in a number of sectors is now around pre-Covid levels, although it remains materially below in others. The housing market remains strong, and indicators of consumer confidence have increased" it continued.

"The Committee's central expectation is that the economy will experience a temporary period of strong GDP growth and above-target CPI inflation, after which growth and inflation will fall back" it added.

 

 

"There are two-sided risks around this central path, and it is possible that near-term upward pressure on prices could prove somewhat larger than expected.

"Taking together the evidence from financial market measures and surveys of households, businesses and professional forecasters, the Committee judges that UK inflation expectations remain well anchored."

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