Interest rate hikes are ‘temporary’ says Bank of England’s Andrew Bailey
Market News

Interest rate hikes are ‘temporary’ says Bank of England’s Andrew Bailey

Story Highlights

The Governor of the Bank of England believes that the underlying factors leading to low interest rates still persist – and they will return

Raised interest rates are a temporary measure, and low interest rates will return once inflation falls, the Governor of the Bank of England, Andrew Bailey, has said.

In a speech to the Official Monetary and Financial Institutions Forum, Bailey said, “Cyclical adjustments in short-term nominal interest rates – like those we are currently witnessing in the United Kingdom and abroad – will for the foreseeable future continue to be played out against the backdrop of low global equilibrium real interest rates.”

Inflation in Britain is at 9.1%, its highest level in the last 40 years.

Inflation is expected to touch 11% in the coming months, sparked by global factors such as rising energy prices as a result of the war in Ukraine.

But Bailey believes the underlying factors which have kept interest rates low – such as increased lifespans leading people to save more for their retirements – will “persist”, he said.

The BoE is under pressure to keep inflation under control.

In June 2022, it increased its rates from 1% to 1.25%. This was the fifth consecutive hike since December 2021. Some City observers expect the rate to hit 2.5% before the end of the year.

The BoE aims at bringing inflation down to 2% in around two years. Mr. Bailey said that policymakers are prepared to take whatever steps are necessary to bring inflation back to target.

Bailey also spoke about the long-term impacts of the COVID-19 pandemic, saying, “It is too soon to tell what the long-run impact of the pandemic will be for the economy.”

“It is worth bearing in mind that, while the pandemic was a large and unprecedented economic shock, with profound changes to labour markets and the way we work, it is possible that its long-run effects on productivity will be small.”


Price Change
S&P 500
Dow Jones
Nasdaq 100

Popular Articles