Boost for Mortgage Holders
The Bank of England may stop raising interest rates as soon as this month, its Governor has suggested in a boost for Jeremy Hunt’s strategy.
Andrew Bailey told MPs that the period when it was “clear that rates needed to rise going forwards” was now over.
And he insisted that he did not know whether he would vote to hike rates again at the next meeting of the Bank’s monetary policy committee on 21 September.
His intervention came after a number of indicators that inflation may be easing faster than previously feared, leading Treasury officials to believe that they are on track to meet the Government’s target of halving the inflation rate over the course of this year.
Consumer price inflation currently stands at 6.8 per cent and must fall to slightly over 5 per cent in order to hit the goal set out by Rishi Sunak.
The Bank’s main interest rate is at 5.25 per cent and has been increased at every possible opportunity since December 2021. Most economists are forecasting a further hike this month.
Interest Rate Rises on Mortgages Could End Suggests BOE Governor Mr Bailey told the Commons Treasury committee: “I don’t think any of us in this room are going to tell you how we are going to vote in two weeks’ time because we don’t know, we haven’t had those deliberations.”
Pressed on the future path of rates, he said: “There was a period where it seemed to me to be clear that rates needed to rise going forwards, and the question for us was how much and over what time frame.
“But we’re not I think in that place anymore and that’s why we shifted our language to being much more evidence and data-driven.
“I think we are much nearer now to the top of the cycle. And I am not therefore saying that we are at the top of the cycle because we still have a meeting to come. But I think we are much nearer to it, on interest rates, based on the current evidence.”
Sir Jon Cunliffe, the Bank’s deputy governor, suggested that rising unemployment had weakened the case for further rate rises. Increases in interest rates are intended to make borrowing more expensive and saving more lucrative, reducing consumer demand in the everyday economy and therefore limiting the pace of price rises.
A Treasury insider welcomed Mr Bailey’s comments, saying: “It is encouraging to hear him sounding positive on the outlook.”
The Bank Governor admitted that interest rate rises were squeezing the poorest by driving up rents but insisted: “We have to do what we have to do on monetary policy because if we don’t get inflation down I’m afraid the consequences are worse, but I am conscious of the fact that the private rental market has a higher concentration in the lower income groups in society.”
He said the slowdown in inflation would be “further quite marked by the end of this year”, but added that he had been surprised by trade unions’ ability to keep securing higher pay rises from employers, a trend which tends to push prices upward