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UK interest rates could hit 2% or even higher, warns Bank of England's Saunders - YAHOO FINANCE

JULY 18, 2022

BY  Pedro Goncalves·Finance Reporter, Yahoo Finance UK

Bank of England (BoE) policymaker Michael Saunders has warned that interest rates could reach 2% or higher during the next year in order to curb inflation.

Saunders said he expects further rate rises in the months ahead, and that it was neither “unplausible or unlikely” that interest rates could reach 2% over the next year.

“Economic growth has slowed. But, with excess demand and low potential growth, some further monetary tightening remains likely in coming months in my view, to ensure that inflation returns to the 2% target on a sustained basis,” he said.

Inflation rates are expected to rise again by the end of the year to 11%, despite currently being at its highest rate since 1981.

Inflation in the UK is at record high levels
Inflation in the UK is at record high levels. Chart: Yahoo

“It is especially important at present to lean against risks that recent trends in inflation expectations, underlying pay growth and firms’ pricing strategies become more firmly embedded,” he added.

UK interest rates
UK interest rates

Saunders said that he had hoped rate rises would take place sooner rather than later, as indicated by his recent votes at the Monetary Policy Committee (MPC), which voted by a majority to increase its key base rate by 0.25 percentage points to 1.25% in June in response to living costs rising at the fastest annual rate for four decades.

Saunders will be stepping down as BoE policymaker on 8 August.


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