Business

The bank should raise interest rates when inflation reaches a 30-year high, warns City

P

RESESS grows on Bank of England deliver “unpleasant drugs” to combat inflation as it reached a 30-year high amid warnings of a much worse future.

Headline inflation is 6.2% in February, a sharp jump of 5.5% in January and much higher than economists waited.

Even this figure will soon be overcome as world prices energy, food and a transport rocket.

Factory prices are already rising by more than 10%.

Last week, the Bank of England raised interest rates by 0.25% to 0.75%, expressing concern about the economy and warning that inflation will reach 8% by June.

This forecast already seems outdated for many who believe that the Bank should move much faster.

Guy Foster, Brewin Dolphin’s chief strategist, said: “There is a clear breadth of inflationary pressures affecting Western economies such as the UK. Normally, high food and energy costs take a share of the wallet away from more discretionary costs – but when the job market is tense, employees have good opportunities to argue for higher wages, which risks turning into even higher prices. The Bank of England cannot avoid this problem and must be prepared to introduce any unpleasant drugs. “

Jack Leslie of the Resolution Foundation said the numbers in February were just a taste of what would happen, a contraction that would be “a complete disaster for living standards.”

While higher borrowing costs are also hitting households, the Bank seems to have no choice but to continue raising rates.

Danny Husson, AJ Bell’s financial analyst, said: “What people experienced in February was just the tip of the inflation iceberg. If we reject the Russian invasion of Ukraine at the moment, the rise in energy prices next month will be significant. Even if the current heat continues, simply turning on the lights will put more pressure on household budgets. ”

Some economists admit that it is now almost impossible to predict inflation.

Separately, housing prices continue to rise. Today, the ONS said that in 2021 full-time employees had to spend 9.1% of salary on a mortgage compared to 7.9% in 2020.

If rates are raised, it will only make mortgages more expensive in the long run as the cost of new fixed rate deals rises.

Average house prices in England rose 9.4% to £ 292,000 a year before January.

The bank should raise interest rates when inflation reaches a 30-year high, warns City

Source link The bank should raise interest rates when inflation reaches a 30-year high, warns City

Back to top button