Andrew Bailey, the Governor of the Bank of England, has indicated that interest rates may be nearing their peak but could still rise further.
The Bank has increased interest rates 14 times in a row in an effort to combat high inflation. It is expected to raise borrowing costs once again this month, bringing the Bank rate to 5.5%.
While raising interest rates can reduce spending and slow inflation, the current rate is the highest in 15 years, and inflation remains well above the government’s target of 2%.
Inflation remains high despite slight drop
Although inflation fell to 6.8% in the year to July, down from 7.9% in June, Bailey mentioned that it is still significantly above the target.
Bailey believes there is evidence that inflation may be slowing, but it’s uncertain how much this will affect wage growth, which has recently reached record highs and can contribute to inflation.
He stated that many indicators are moving as expected, signaling a potential decrease in inflation by the end of the year.
However, the key question is whether inflation expectations will continue to decline and influence wage bargaining.
Bailey’s remarks suggest that future interest rate increases may be smaller than anticipated by the markets.
However, he emphasized that the Bank’s next decision, scheduled for September 21, will depend on the latest economic data, including job figures, economic growth, wage growth, and inflation.
He also reiterated that interest rates could remain elevated for some time.
The impact of higher rates is already affecting more than half of mortgage holders, with many facing significant increases in their monthly repayments as fixed-rate deals expire in the coming months.