The Governor of the Bank of England has said ultra-low interest rates will return once the effects of Covid and the war in Ukraine fade.
Andrew Bailly said there would be “no ifs or buts” in the quest to bring down inflation, once again hinting that aggressive rate rises could be on the way in the coming months.
But he told The Telegraph that there is no reason to think the enormous global forces which drove interest rates to record lows have gone away, or that the fallout from the pandemic will force worldwide interest rates back up again on a permanent basis.
“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,” Mr Bailey said.
Mr Bailey did not commit to any specific course of action on interest rates in the coming months, but stressed that the MPC “will take the actions necessary to return inflation to the 2% target”.
“The scale, pace and timing of any further increases in Bank Rate will reflect the Committee’s assessment of the economic outlook and inflationary pressures,” he said.
“The Committee will be particularly alert to indications of more persistent inflationary pressures, and will if necessary act forcefully in response. Bringing inflation back down to the 2% target sustainably is our job, no ifs or buts.”
Financial markets currently expect the Bank to raise its base rate to 2% by September and at least 2.5% by the end of the year.
Tax 'overhaul'
Meanwhile, Candidates to be the UK's next prime minister should focus on growth and an overhaul of the tax system over quick cuts, a business group has said.
Promises of tax reductions feature heavily in the leadership campaigns but the CBI business group said the wrong cuts could fuel inflation further.
In an open letter, CBI director general Tony Danker called for "serious, credible and bold plans for growth".
Current government plans to increase corporation tax from 19% to 25% in April are not proving popular with businesses, and some candidates have promised to cancel it.
But the CBI said a permanent extension to extra tax reliefs on investment - due to expire in April - and an overhaul of business rates are more important to create investment and growth.
FTSE 100
The UK's top share index, the FTSE 100, was down 45 points at 7,163 shortly after opening this morning, following yesterday's 13 point gain.
Companies reporting today