United Kingdom interest rates set to rise as inflation hits 3 per cent

18 October, 2017, 00:43 | Author: Terri Saunders
  • Mark Carney will have to write a letter to chancellor Philip Hammond if inflation pushes over 3pc

In the meantime, the feed through from the recent increase in British Gas electricity tariffs and a further rise in motor fuel prices combined to push overall CPI up on the month by 0.3 percent and stimulated the annual rate to 3 percent.

Dave Ramsden, the new deputy governor of the Bank of England said that he was not in support of voting for an interest rate hike, calling into question when the BoE will implement its first interest rate hike in over ten years.

"Today's release has all but rubber-stamped a rate hike from the central bank at their next meeting", said David Cheetham, chief market analyst at online trading firm XTB.

One of the main reasons why inflation has spiked over the past year is related to the pound's sharp fall since the country voted to leave the European Union in June 2016.

The 15% or so drop in the pound against a range of currencies has ratcheted up the cost of imported goods such as food and energy.

Asked whether the MPC had enough interest rate "room" to deal with a possible recession, the Canadian responded: "Building a war chest in interest rate terms for a potential future shock isn't staying on point in terms of the inflation target, nor is it appropriate or necessary, given that policy can move quite nimbly if required". Meanwhile, monthly input price inflation eased notably to 0.4 percent from 2.3 percent.

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Grilled by the House of Commons Treasury Select Committee, Carney stuck by the Bank of England's revised estimates that inflation would peak in October or November this year.

The BoE has said most of its rate-setters think they will need to raise interest rates "in the coming months" to head off a build-up of inflation pressure.

"Not raising rates now, having led the markets up the garden path on several occasions over the years would be as equally damaging to the banks credibility".

BoE Governor Mark Carney, who was still being questioned by MPs at just before midday on Tuesday, reiterated the MPC view that the majority of policymakers felt a rate hike "in the coming months may be appropriate".

"Life is getting much more expensive with an increase in the cost of food, fuel and a last-minute price spike in flights all contributing to the rise in inflation", said Maike Currie, investment director for personal investing at Fidelity International.

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