LONDON (Reuters) -Bank of England Governor Andrew Bailey sent a fresh signal on Sunday that the British central bank is gearing up to raise interest rates for the first time since the onset of the coronavirus crisis as inflation risks mount.
Bailey said he continued to believe that the rise in inflation would be temporary, but the recent surge in energy prices would push it higher and make its climb last longer, raising the risk of higher inflation expectations.
“Monetary policy cannot solve supply-side problems – but it will have to act and must do so if we see a risk, particularly to medium-term inflation and to medium-term inflation expectations,” Bailey said during an online panel discussion organised by the Group of 30 consultative group.
“And that’s why we at the Bank of England have signalled, and this is another such signal, that we will have to act,” he said. “But of course that action comes in our monetary policy meetings.”
The BoE has said Britain’s inflation rate is set to go over 4%, more than double its target, as the world economy reopens from its COVID-19 lockdowns and the price of energy soars.
Investors are speculating that the BoE might become the first of the world’s biggest central banks to raise rates, later this year or early in 2022.
Bailey said demand for workers in Britain had been stronger than expected, while the number of younger and older workers leaving the labour market had grown.
“I do have concerns about labour supply growth,” he said.
(Reporting by William Schomberg; Editing by Kevin Liffey)
