A Bank of England policymaker warned on Monday that interest rates could top 2% next year to tackle soaring inflation. Michael Saunders, an outgoing member of the Bank’s rate-setting Monetary Policy Committee, said it was better to take aggressive action now than do too little, too late.
At present its base rate, which influences borrowing costs across the economy, stands at 1.25% after a series of increases, reports the Mirror. At the MPC’s meeting in June, Mr Saunders voted for an increase to 1.5%.
He warned that rises, which can force up thinks like mortgage repayment rates, still have some way to go to bring inflation under control. Figures due out from the Office for National Statistics are expected to show inflation reached 9.2% in June, a new 40-year high.
Read more: The Bank of England has put up interest rates again – so how will it affect me?
Speaking to the Resolution Foundation think-tank, Mr Saunders, who leaves the MPC next month, warned that despite signs of a slowdown in the wider economy, the risks of not raising rates steeply quickly outweighed those of being too cautious.
He said: "The MPC has to balance the risks and costs of tightening ‘too much, too soon’ versus ‘too little, too late’. “In my view, the cost of the second outcome would be relatively high at present."
Mr Saunders added: "Without wishing to endorse those views too strongly, I do not regard such an outcome – ie that the Bank rate will have to rise to 2% or higher during the next year – as implausible or unlikely."
Mr Saunders also said he believed the economy could withstand aggressive rate hikes.
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