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BoE would reconsider interest rates.

 

The BoE had said it would reconsider its plans for interest rates if the government imposed measures in the statement that changed the picture for the economy immediately, deepening the economic downturn and putting downward pressure on inflation. «I expect that further increases in the bank rate are going to be required to ensure a sustainable return of inflation to target,» he said. However, the deputy governor made clear he would consider another considerable interest rate rise at the next meeting in mid-December if he saw that companies still felt able to raise prices to defend profit margins and increase wages significantly higher than the 2 per cent inflation target. Ramsden added that although his bias was «towards further tightening», he would «consider the case for reducing the bank rate» if the economy developed differently from his expectations and persistent inflation stopped being a concern.

At its last meeting, the MPC signalled that if inflation began to shrink, expected as the economy entered a recession, it would not need to raise rates much further to bring inflation down to its 2 per cent target. However, Lord Mervyn King, former governor,  said the most likely mistake that policymakers would now make would be not to raise interest rates high enough as inflation begins to fall in 2023. «A premature end to the monetary squeeze needed to bring core inflation down would result in a more prolonged recession than is necessary.».

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