© Reuters. FILE PHOTO: Bank of England Deputy Governor Dave Ramsden stands for a portrait during an interview with Reuters, at the Bank of England, London, Britain, August 8, 2022. REUTERS/Toby Melville/File Photo
LONDON (Reuters) – The Bank of England must stick to its plan to quash the surge in inflation even if it means more pain for the economy, said, adding that the tax-cutting plans of Britain’s new government could add to the inflation challenge.
“However difficult the consequences might be for the economy, the MPC must stay the course and set monetary policy to return to achieve the 2% target,” Ramsden said in a speech on Friday to the Securities Industry Conference 2022.
Investors have ramped up their bets on how high the BoE’s Monetary Policy Committee (MPC) will take interest rates after the country’s new finance minister Kwasi Kwarteng announced a series of tax cuts on Sept. 23.
They are now betting heavily on the central bank raising Bank Rate by a full percentage point to 3.25% in its next scheduled policy announcement on Nov. 3, before taking it up to around 5.75% by next June.
Ramsden said the BoE would factor Kwarteng’s economic stimulus plan and recent big movements in financial markets into its next economic forecasts due in November.
“Based on what we know so far, these impacts are likely to be material for the economic outlook over the next three years, which is also the horizon relevant for monetary policy,” he said in his speech.
Ramsden said the BoE’s decision to launch a temporary bond-buying programme to stabilise the British government bond market after Kwarteng’s “mini-budget” was “an operation designed to buy time – I won’t say any more about it here”.