Interest rates could reach 2% or more in the next year, according to a member of the Bank of England’s rate setting Monetary Policy Committee.
Michael Saunders, who will leave the bank after its meeting next month, said it was not “implausible or unlikely” interest rates would rise by another 0.75 percentage points or more in the next year as the central bank tries to curb inflation, the Times reports.
This would be in line with predictions by financial markets.
The bank has raise rates five times in a row from the low of 0.1 per cent adopted during the pandemic to a 13-year high of 1.25 per cent.
Saunders had voted for a 0.5 percentage-point rise in the past two policy committee meetings. Such a rise would have been unprecedented in the 25 years since responsibility for monetary policy was handed to the Bank by the Treasury. He told an event hosted by the Resolution Foundation think tank yesterday that the monetary policy tightening cycle may still “have some way to go”.
The bank is raising rates to try to lower inflation, currently running at 9.1%, a 40-year high.
Inflation is expected to go higher, to peak at more than 11% in October when the energy price cap is increased by Ofgem, the regulator. The average household energy bill may exceed £3,200, forecasters say.
Central banks are struggling to contain inflation, which is being driven by the rising costs of energy and fuel, without causing a recession — defined as two consecutive quarters of economic contraction.