Bailey signals further near-term tightening after Bank of England raises rates to 4%
Key Facts
Bank of England Chief Economist Huw Pill said reaching the interest-rate level needed to address inflation risks may require further tightening, including in the near term. The signal came in the minutes of the Monetary Policy Committee’s November meeting, after the Bank raised its policy rate to 4%. Pill linked the path of future decisions to evidence of persistent inflation and its second-round effects. That leaves further increases on the table, with their timing and scale dependent on how those pressures evolve. Pill said reaching the necessary level “is likely to require further policy tightening, including in the near term.”
The Bank raised rates by 0.25 percentage points at its 4 November meeting, with eight members voting in favour and one preferring a larger increase. The dissenting member wanted a 0.5 percentage-point rise to 4.25%. The decision followed the September meeting, when the committee kept rates at 3.75% by a 6–3 vote. The three dissenters in September had called for a 0.25 percentage-point increase to 4%. November’s shift to a wider majority in favour of a rise, while one member continued to prefer a larger move, shows differences among committee members over the scale of tightening required.
Pill’s stance coincided with annual consumer price inflation rising to 3.5% in September from 3.1% in August, according to data from the Office for National Statistics. Core inflation also rose to 2.8% in September, compared with 2.6% in the previous month. The Bank of England said consumer price inflation was 3.5% in September and forecast it would rise to about 5% by the middle of next year. These figures put the price outlook at the centre of the interest-rate debate, with Pill saying persistent inflation and its second-round effects would influence future decisions. Price pressures had intensified as the Bank faced the risk of their spreading more broadly through the economy.
The Bank of England attributed inflationary pressures to higher global energy prices linked to the conflict in the Middle East. The Bank said activity data in recent months had generally been stronger than expected, adding to the case for a modestly tighter monetary policy. The assessment combines price pressures with economic performance that had exceeded the Bank’s expectations in recent months, both cited in support of tightening. In output data, the UK economy grew 0.7% in the third quarter from the second quarter, after growing 0.5% in the second quarter. Output growth was 1.9% in the third quarter compared with the same period a year earlier.
On a monthly basis, output rose in September, with services growing 0.2%, production 0.3% and construction 0.8%, according to the Office for National Statistics. These figures show the components of monthly growth alongside the third-quarter reading, which showed quarterly growth accelerating from 0.5% in the second quarter to 0.7%. They also distinguish September’s output growth from the pace of growth over the full quarter, keeping the monthly reading separate from the quarterly expansion rate. Investors are awaiting October inflation data, due to be published on 18 November at 07:00 UK time. The Bank of England has set 17 December for the next Monetary Policy Committee meeting and its next interest-rate decision.