Bank must plan more rate rises, warns deputy governor

MORE interest rate rises will be needed to stamp out inflation as surging pay packets threaten to feed back into prices, the Bank of England’s deputy governor has warned.

Sir Dave Ramsden warned that businesses are scrambling to fill record vacancies as he backed pushing borrowing costs even higher to rein in the strongest price pressures in three decades. He warned the Bank has not “gone far enough” yet after four backto-back hikes that lifted interest rates to a post-financial crisis high of 1pc.

The Monetary Policy Committee member said in an interview with Bloomberg: “Certainly on the basis of my current assessment of prospects, we’re not there yet in terms of how far monetary policy has to tighten.

“I’m still very, very supportive of the forward guidance that there may well need to be further tightening in the coming months.”

There are fears that high inflation will be sustained beyond the energy price spike by an ultra-tight jobs market causing a surge in wages that loops back into prices. Firms are battling to fill record vacancies and inflationary pressures threaten to tempt workers to demand pay increases.

Sir Dave said on the jobs market: “Given what we know about the UK labour market, I wouldn’t be surprised if it turned out to be a bit tighter. I think there are upside risks on inflation [in] the medium term.”

He said businesses are having problems recruiting staff as the scramble to hire pushes up pay. Financial markets believe the Bank will push rates to 2pc by the end of the year but rate-setters have sought to curb hike expectations.

However, three former Bank ratesetters warned on Wednesday of the risk of a wage-price spiral and higher interest rates than markets expect.

In a Treasury committee hearing, former MPC member Charles Goodhart said rates could hit 5pc as he warned the wage-price surge is already beginning.

Adam Posen, a Bank rate-setter in the aftermath of the financial crisis, told MPS: “We’re in a situation in the UK, like the US and other places, where wages are rising and at a probably unsustainable pace compared to where productivity is and where we want inflation to be.”