The Bank of England gave another warning yesterday that it will raise interest rates amid the surge in the price of energy.
Governor Andrew Bailey said the increased inflation will last longer than previously expected because of soaring gas bills and rising wages.
He made clear that the Bank 'will have to act and must do so if we see a risk, particularly to medium-term inflation'.
Interest rates are currently at historic lows of 0.1 per cent, having been dropped from 0.25 per cent in March last year to help fight the impacts of the pandemic.
City traders have predicted they will rise to 1 per cent by this time next year, which would represent the fastest change in 15 years.
Any increase will hit families with variable-rate mortgages, but would be a boon to savers who have suffered from a decade of pitiful returns.
The Governor of the Bank of England Andrew Bailey (pictured) said the increased inflation will last longer than previously expected because of soaring gas bills and rising wages
Interest rates are currently at historic lows of 0.1 per cent, having been dropped from 0.25 per cent in March last year to help fight the impacts of the pandemic
The Bank has forecast that inflation will go above 4 per cent – more than double its target – as the economy reopens from its Covid lockdowns, causing shortages of supplies and staff.
The price of energy is also soaring, leaving households facing bills of more than £2,000 per year to heat their homes.
Wholesale prices have rocketed on the back of booming demand from Asia, light winds and restricted gas supply from Russia.
Speaking to an online panel organised by the Group of 30 – a set of economic and financial leaders – yesterday, Mr Bailey added: 'That's why we at the Bank of England have signalled, and this is another such signal, that we will have to act.'
He had already warned in late September that rising costs for businesses had 'strengthened the case' for a rate rise.