In a speech given in Washington DC on Saturday morning, the Bank of England Governor warned that inflationary pressures would require “a stronger response” than the central bank had previously thought.
His comments come just a day after Kwasi Kwarteng was sacked as Chancellor in a bid to calm weeks of market volatility prompted by his mini-budget. Former health secretary Jeremy Hunt was announced as his successor on Friday.
The Bank will meet on November 3 to outline its response to the Government’s fiscal statement on October 31.
“We will know the full scope of fiscal policy by then. But I will repeat what we have said already,” Mr Bailey said.
“We will not hesitate to raise interest rates to meet the inflation target.
“And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”
Last month, the Bank hiked interest rates to 2.25 per cent – the highest level since December 2008 – after an earlier increase in August.
Mr Bailey said that the current economic conditions would require a “large measure of stoicism” amid the continuing fallout from the war in Ukraine, which has pushed up global energy prices.
“We should start by recognising that however difficult each of our positions is, that is nothing compared to the suffering inflicted on the people of Ukraine,” he said.
He added: “UK financial markets have experienced some violent moves in the last few weeks particularly at the long-end of the Government debt market.
“This has put the spotlight on the flaws in the strategy and structure of one important part of a lot of pension funds.
“At the Bank of England we’ve had to intervene to deal with a threat to the stability of the financial system, our other core objective.”
Meanwhile, new Chancellor Jeremy Hunt on Saturday warned of “difficult” decisions to come as he signalled the country could face tax rises and a tightening on spending.
Mr Hunt will meet with Treasury officials later on Saturday and with Ms Truss at Chequers on Sunday as he prepares to deliver a highly anticipated medium-term fiscal plan on October 31.
That statement, he told ITV’s Robert Peston on Saturday, now amounts to effectively a budget – in contrast to Mr Kwarteng’s now notorious “mini-budget” published without an accompanying analysis from the Office for Budget Responsibility.