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Interest rates: Top Bank of England official warns further rises needed

interest rate FILE - A woman with an umbrella stands in front of the Bank of England, at the financial district in London, Thursday, Nov. 3, 2022. Britain’s economy shrank in the three months to September, official statistics said Friday, Nov. 11, 2022, as forecasters warned of many months of contraction to come. The Office for National Statistics said gross domestic product fell by 0.2% between July and September, a smaller-than-expected contraction that nevertheless is seen to signal the start of a long recession. (AP Photo/Kin Cheung, File)
Bank of England Deputy Governor Dave Ramsden backed more interest rate hikes. Photo: Kin Cheung/AP

A senior Bank of England (BoE) policymaker has warned that the central bank must continue to raise interest rates to tackle inflation even if it means more hardship for households.

Dave Ramsden, BoE deputy governor, said he would “continue to respond forcefully” if inflation pressures proved to be more persistent than expected.

“Millions of households and businesses are experiencing great hardship as a result of the cost of living crisis. As a member of the MPC I am acutely conscious that our actions are adding to the difficulties caused by the current situation,” he said.

“The MPC must take the necessary steps in terms of monetary policy to return inflation to achieve the 2%,” he added.

Read more: Pound hits highest since August on hopes for slower interest rate hikes

Ramsden has been one of the hawkish members of the Monetary Policy Committee (MPC), pushing a faster pace of tightening earlier this year.

He said that despite the current hardships UK households are facing, to let inflation run rampant would be even worse.

“However challenging the short term consequences might be for the UK economy, the MPC must take the necessary steps in terms of monetary policy to return inflation to achieve the 2% target sustainably in the medium term.

“By restoring low inflation, consistent with its remit, the MPC can best contribute to securing stability and certainty, the foundations for sustainable growth.”

Annual consumer inflation in the UK reached a never-before-seen high of 11.1% in October, data from the Office for National Statistics showed.

Ramsden suggested he would consider voting to cut UK interest rates if growth and inflation are weaker than expected.

Read more: Energy bill support to cost taxpayers £1,800 per household

“Given the uncertainties we face it is important also to be humble about what we don’t know or still have to learn. I favour a watchful and responsive approach to setting policy.

“Although my bias is towards further tightening, if the economy develops differently to my expectation and persistence in inflation stops being a concern, then I would consider the case for reducing Bank Rate, as appropriate,” Ramsden said in a speech at King’s College London.

Earlier this month, BoE governor Andrew Bailey said market expectations for interest rates north of 5% were too high.

The BoE has raised interest rates eight times since December 2021.

Interest rates were raised by 0.75 percentage points to a 33-year high of 3% in November.

Watch: Bank of England governor says the UK's reputation was damaged by Truss's mini-budget