Further rate rises likely should inflation persist - BoE governor

The Bank of England will continue hiking interest rates if inflationary pressures persist, its governor warned on Wednesday.

The Monetary Policy Committee raised the cost of borrowing last week for the twelfth consecutive time, to 4.5%, as it tries to bring down stubbornly high inflation. Currently at 10.1%, the BoE’s target for inflation is 2%.

Interest rates are now the highest since 2008, but in a speech to the British Chambers of Commerce annual conference, Andrew Bailey said the BoE would increase them further should inflation persist.

He said: "I can assure you that the MPC will adjust bank rate as necessary to return inflation to target sustainably in the medium term, in line with its remit.

"If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.

"Our commitment to the 2% inflation target is unwavering."

Bailey also acknowledged the impact of second-round effects, including wage increases.

"Some of the strength in core inflation reflects the indirect effects of higher energy prices. But it also reflects second-round effects as the external shocks we have seen interact with the state of the domestic economy.

"And as headline inflation falls, these second-round effects are unlikely to go away as quickly as they appeared."

He continued: "The Committee continues to judge that the risks to inflation are skewed significantly to the upside, primarily reflecting the possibility of more persistence in domestic wage and price setting.

"We think the unwinding of second-round effects may take longer than it did for them to emerge."