City comment: The Bank of England must raise interest rates — but don’t expect inflation to disappear
An interest rate rise is in the post but will it make any difference?
Today’s forecast-busting inflation figure means a rate rise next month looks almost certain. With inflation jumping at its fastest rate in three decades, the Bank of England has to be seen to be doing something.
The problem is an interest rate hike might not do much.
Today’s data shows inflation is being driven higher by petrol prices and soaring gas and electricity bills. Spiking fuel prices are a global issue Threadneedle Street can do little about. As Andrew Bailey has pointed out, the Bank of England can’t pump any more oil or pipe natural gas.
Still, Bailey & co have to do something. Inflation is rising so rapidly it risks becoming embedded. Even if a rate rise is marginal, helping around the edges is better than nothing. Then there’s the issue of the Bank’s credibility.
The MPC’s decision to leave rates untouched at the start of the month wrong footed about half the market and many now question its credibility. Can the Bank be trusted to do what it says? And can you even understand what it is they are trying to say?
The Bank has resisted raising rates to date partly because it wanted to make sure the jobs market was strong. Yesterday’s bumper employment numbers suggest that’s no longer a concern.
Hiking rates might not put a stop to soaring inflation but it could at least slow it — and go some way to repairing relations with the City. Time to act.
