The Bank of England has raised interest rates for the tenth time in a row lumping further pressure on mortgage borrowers (Yui Mok/ PA)
(Picture: PA Wire)A Bank of England Monetary Policy Committee member has said today that further interest rate increases are still more likely than not, after the bank raised rates to 4 per cent last week.
Speaking at the Lámfalussy Lectures Conference in Budapest, Catherine L. Mann - one of the nine committee members who set UK interest rates - discussed whether inflation had hit a “turning point” that would prompt the Bank to stop raising rates.
She said it was hard to tell whether a turning point had been reached, but that she felt the consequences of being too cautious in interest rates would be worse than the consequences of being too aggressive.
“If there is uncertainty about the degree of inflation persistence, it is better to assume a high degree because the costs of making a mistake if the true inflation process is more persistent are larger than if the true inflation process is less persistent,” Mann said.
As a result, Mann said she expects that the Bank will continue raising rates.
“We need to stay the course, and in my view the next step in the bank rate is still more likely to be another hike than a cut or hold.”
The Bank of England has already raised rates 10 times in a row, with last week’s rise taking the cost of borrowing to 4 per cent. Seven members of the committee voted for the increase, while two voted to keep rates at 3.5 per cent.
The increase will have an immediate impact on the bills of the estimated 200,000 homeowners in London who are on tracker or variable-rate mortgages, as well as the 250,000 London households coming off fixed-rate deals.
Mann also noted that the UK showed less signs of having reached a turning point than the US or Eurozone. This, she said, was partly due to Brexit.
“All three regions faced a sequence of shocks to both demand and supply,” she said, citing the impact of Covid-19 and Russia’s invasion of Ukraine.
“However, the UK has also been affected by a third type of shock which makes it unique: no other country chose to unilaterally impose trade barriers on its closest trading partners.”
