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Bank of England official warns of potential early interest rate rise

Michael Saunders’ remarks add to signs Bank might become first major central bank to raise rates since Covid hit

Michael Saunders

Michael Saunders said markets had fully priced in a February rate rise by the UK central bank. Photograph: Graeme Robertson/The Guardian

Guardian staff and agencies

The Bank of England policymaker Michael Saunders has warned households to get ready for “significantly earlier” interest rate rises as inflation pressure mounts in the British economy.

Saunders said investors were right to bet on faster increases in borrowing costs with consumer price inflation on course to rise above 4%, adding to signs the Bank might become the first major central bank to raise rates since the coronavirus pandemic struck.

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“I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely. The decisions get taken at the proper time,” Saunders said in a an interview with the Telegraph. “But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”

Last month the nine-member monetary policy committee voted unanimously to keep rates at 0.1%, an all-time low, despite annual inflation running at 3.2%, the highest level in more than nine years and above the Bank’s 2% target.

However, Saunders and the deputy governor Dave Ramsden voted to cut short the limit on the central bank’s £895bn quantitative easing programme by £35bn.

Saunders said markets had fully priced in a February rate rise by the UK central bank and had half priced in a December increase in borrowing costs.

“I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously,” he said.

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The comments by Saunders came shortly after the Bank of England governor, Andrew Bailey, said inflation running above the central bank’s 2% target was concerning and had to be managed to prevent it from becoming permanently embedded.

“We are going to have a very delicate and challenging job on our hands, so we have got to in a sense prevent the thing becoming permanently embedded because that would obviously be very damaging,” Bailey told the Yorkshire Post newspaper.

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