In a speech at Imperial College today, Ben Broadbent (pictured) said the increase in market interest rates had been “very dramatic” of late and in August, pricing in the financial markets was consistent with the Bank Rate peaking at three per cent by spring 2023 then falling back the following year.
Broadbent said the Monetary Policy Committee had “raised interest rates faster than any time in its history”, but this was still more gradual than the rises to inflation.
Broadbent said there had been debates as to whether the MPC should react quickly to economic news and increase rates immediately or respond by degrees to create a “natural upward slope”.
He said the Energy Price Cap would limit headline inflation while it was in place, but also reduce the impact of costs on household incomes and conversely, add to inflation in the medium term.
Broadbent said the possibility of the latter outcome was more likely.
He said the MPC would continue to respond to fiscal policy implemented by the government, but “whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen”.
It has been speculated that the MPC would increase the Bank Rate by one per cent to 3.25 per cent at its next meeting on 3 November. It was also predicted that the rate would peak at 5.3 per cent by June next year but following Broadbent’s speech, this has been revised down to 5.2 per cent.
