“Strictly argued” interest rates should be raised sooner, says business secretary | Business newsletter
Business Secretary Kwasi Kwarteng said there was a “strong argument” that the Bank of England should raise rates “a little bit sooner”.
Mr Kwarteng was speaking on Sky News a day after the bank raised interest rates from 1.25% to 1.75% in an attempt to curb inflation, which has already risen to 9.4% and is forecast to reaching 13% by the end of this year.
“There’s an argument – and I think it’s a strong one – to say that inflation is a problem that was identified early last year,” he said.
“The bank’s job is to deal with inflation. They set an inflation target of 2%. That’s really their mission.
“And now inflation is hitting double digits.
“So clearly something went wrong and I think there’s an argument that the price should probably go up a little bit sooner.”
Governor of the Bank of England, Andrew Bailey, told the BBC: “There are some points where, yes, I would say: ‘I’m sorry, I don’t agree with that’.
“If you go back two years … to the situation that we were facing at that time in the context of COVID, in the context of the labor market, the idea that by that time we would have tightened up. monetary policy, you know. I don’t remember a lot of people saying that.”
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Why does the Bank of England add to my bills by raising the rate?
The biggest rate hike since 1995 on Thursday will increase costs for millions of borrowers but Mr Bailey told Sky News that pain is needed to prevent further deterioration in the future. .
“The reason we do that is because if we don’t get inflation under control, if we don’t bring it down from there, I’m afraid it will go up because of this huge energy shock,” he said. that we’re having, if we don’t bring it down then the damage, the suffering, will be even greater.”
He added: “If we have more persistent inflation, that’s harder for everyone – we’re going to have to raise interest rates more and people, especially those on lower incomes, will suffer a lot more. more influence.”
Downsizing the workforce
Much of the inflationary pressure comes from energy prices, which are forecast to remain high next year mainly thanks to Russia’s invasion of Ukraine.
This leads to the conclusion that there is little that can be done from within the UK, but Mr Bailey says the energy situation is not the only issue facing the economy.
“The main pressure is from outside and that will lead to inflation, I’m afraid this winter.
“We think it’s going to go down next year and beyond, but we have something else going on, which is domestic.
“The workforce has shrunk – there are fewer people working in the economy.”
He said companies around the country had told him they couldn’t hire enough staff, and he said “of course this has an upward effect on costs”.
