More interest rate hikes needed to curb inflation, says Huw Pill

Families face higher interest rates more after the Bank of England chief economist warned that further increases would likely be needed in the battle to contain inflation.

Huw Pill said “I think that’s true” when asked if there could be “a lot more rate hikes coming up” after yesterday’s increase to 0.25 pc from at the Covid emergency level of 0.1 pc.

Mr Pill warned that he was “very uncomfortable” with inflation at 5.1pc, more than two and a half times the Bank’s 2pc target. Threadneedle Street expects price hikes to peak at 6% in April.

The warning suggests that the nearly 2 million homeowners whose mortgages follow the discount rate will face further increases in their payments within months.

It will also add to fears of a tightening housing market, after more than a decade of ultra-low rates sending prices to record highs. Capital Economics warned Thursday that if the discount rate climbed to 2pc, the housing market would fall into “correction territory” – suggesting a decline of 10pc or more.

Mr Pill said “transient” factors such as high energy prices are having a longer-than-expected impact on inflation and that he is worried about the risk of labor costs soaring to the top. -Brittany, making higher inflation more permanent.

In an interview with CNBC, Mr Pill said: “Core inflation, generated more nationally here in the UK, likely centered on cost and wage pressures in a tight and tight labor market , will prove to be more persistent over time.

“These are things that will likely require a monetary policy response here in the UK to ensure they are contained, to keep the cost of living momentum going in a way that is acceptable to households.”

He said Thursday’s rate hike, supported by eight of the nine members of the Monetary Policy Committee, was the bank’s response to these growing pressures.

Mr Pill said the rapidly spreading omicron variant of Covid could hit the economy but also drive up prices, which would pose an additional threat to the Bank’s goal.

Stephen V. Lee