New warning as interest rates may rise further

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The Bank of England has faced criticism from some Tory MPs  (AFP via Getty Images)
The Bank of England has faced criticism from some Tory MPs (AFP via Getty Images)

Millions of home owners faced a fresh warning on Friday that interest rates could be set to rise further, adding to the cost of living squeeze.

In a speech in Cardiff, the Bank of England’s chief economist Huw Pill said the decision by the bank to raise the base rate to one per cent at the start of May was part of a “transition process” to try and tame inflation which hit a 40-year high of nine per cent this week.

His warning came as deputy prime minister Dominic Raab said the next year would be tough, adding that high inflation “will be with us for a year or so”. The speech by Mr Pill, who is a member of the Bank’s rate-setting Monetary Policy Committee, will alarm home owners who are already facing higher energy bills and food prices.

“The further increase of [the] bank rate to one per cent should be seen as part of this transition process,” he said.

“But it is not the end of the transition. In my view, we still have some way to go in our monetary policy tightening, in order to make the return of inflation to target secure.”

The bank has faced criticism from some Tory MPs for failing to spot the risk of higher inflation and then doing too little to keep it under control. Mr Pill said that post-pandemic demand and disruptions to global supply chains had driven up prices, a situation made worse by the war in Ukraine.

But he said he hoped inflation would fall as global commodity prices stabilise and bottlenecks in global supply chains ease. With the Government under pressure to do more to ease the cost of living crisis, Chancellor Rishi Sunak is reported to be considering a new package of support.

Mr Raab said on LBC: “We recognise we have got a global struggle with inflation... But there is all the support we can responsibly provide in place.”

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