The Bank of England is due to raise interest rates to their highest level in 15 years today after new figures showed that previous increases had been ineffective in cutting inflation.
Official figures released yesterday showed that headline inflation remained at 8.7% last month, while core inflation, which strips out volatile energy and food prices, rose to its highest level in 31 years. Inflation was expected to fall to about 8.4%.
Jeremy Hunt’s economic advisers have turned on the Bank of England over its failure to curb inflation.
“The bank has tried to be too cute and on frequent occasions when they have raised rates, they have undone the benefits by talking doveishly,” said Sushil Wadhwani, a former external member of the bank’s monetary policy committee and a member of the chancellor’s seven-member economic advisory council.
Karen Ward, a managing director at JP Morgan and fellow member of the council, said: “They need to create a recession to create uncertainty and frailty, as it’s only when companies feel nervous about the future that they think they won’t put through price rises. There’s no other way around it.”
The bank had been expected to announce a 0.25 percentage point rate increase to 4.75%, but after yesterday’s inflation figures some economists believe that a 0.5 percentage point increase is possible.
Prime minister Rishi Sunak will warn today that Britain cannot afford tax cuts or a financial bailout for families struggling with rising mortgage costs.
