WARNING: Interest rate rise before Xmas is on the cards, says Bank of England chief
One of the key anchors of the housing market in recent years could be about to slip as BoE attempts to rein in 'off target' inflation.
Bank of England governor Andrew Bailey (main picture) has indicated that an interest rate rise could be on the cards in six weeks’ time unless HMRC pay data shows a cooling off.
Quizzed by the Treasury select committee, Bailey admitted he was uneasy about rising inflation – a key sign that rates will probably go up when its monetary policy committee next meets.
The Bank of England held interest rates steady at 0.1% last week, defying many investors’ expectations that it would become the first major central bank to hike rates following the pandemic. Low interest rates have been one of the key reasons why the housing market has remained robust during the last 18 months.
The governor told MPs that HMRC pay data will be key when the committee looks at making a decision; the latest figures show median monthly pay jumped from £1,985 in August to £2,010 in September, and just dropped slightly to £2,005 in October.
Uncertainty
Bailey told MPs that there was still a high level of uncertainty in the economy, with companies having to pay up to recruit people – which didn’t necessarily translate into paying existing staff more.
He said: “The labour market looks tight, that’s a big issue. The risk is if we get real pressure on the labour market, we could prolong inflation.”
He added that his decision to leave rates unchanged last week was a close call. “The question was, do we wait six weeks until the next meeting and we’ll start to see the picture then? I’m not saying we’ll definitely do it next time, that depends on the data.
“But do we wait or act now…given these risks of weaker activity and higher inflation? The labour market story is a crucial part of it and we haven’t seen enough of that story post-Furlough scheme.”
Watch the treasury session in full.
Read more about previous interest rate rises.
