Bank of England warns next interest rate hike could be higher than expected

Interest rates may need to be increased more than initially expected to fight inflation, the Governor of the Bank of England warned.

Andrew Bailey said the bank "will not hesitate to raise interest rates to curb inflation" and revealed he had already spoken to new Chancellor Jeremy Hunt, saying the pair had an "immediate confrontation".

"As things stand, my best estimate is that inflationary pressures will require a stronger response than perhaps we thought in August,” he said. an event in Washington on Saturday.

The BoE is due to announce its next interest rate decision on November 3, and many investors believe it will raise them from their current level of 2.25% to 3% or possibly 3.25%, two much bigger moves than usual.

The BoE previously predicted that the inflation rate would peak at 11% in October.

In his speech, Mr Bailey referred to the market turmoil following the government's mini-budget, adding: "UK financial markets have seen violent movements in recent weeks, particularly on the part long in the public debt market.

"This exposed flaws in the strategy and structure of a significant portion of many pension funds. The Bank of England had to step in to deal with a threat to the stability of the financial system, our other central objective.

The Bank of England has warned that "pressures inflationary" would require a "stronger response" than expected

(PA Wire)

"There may seem to be a tension here between tightening monetary policy and we need to, including the se -so-called quantitative tightening, and buying government debt to mitigate a critical threat to financial stability.

"This explains why we have been clear that our interventions on this last point are strictly temporary and were designed to do the minimum possible or necessary."

In an extraordinary series of interviews Just hours after taking office as chancellor, Mr Hunt said taxes would rise and warned of 'tough' spending cuts ahead.< /p>

He also refused to back down. pledge on the Prime Minister's promised 1p income tax cut and pledge to raise defense spending to 3% of GDP as he admitted 'mistakes' had been made in the mini -last month's budget.

Bank of England Governor Andrew Bailey

(PA Wire )

He said he was "very hopeful" the government could keep the planned 1p cut in income tax, but said he would not make a decision until after have reviewed everything.

As for defense spending, he said any increase in spending would depend on the state of the economy.

He declined to d 'go into specifics about taxes or commit to benefits rising with inflation, despite repeatedly saying it was a 'compassionate Conservative government'.

Mr Bailey's comments come after the BoE confirmed the end of its emergency bond - purchase plan in a bid to protect pension funds. The BoE said further measures would take over after Oct. 14 "to ease liquidity pressures on LDIs [liability-driven investments]".

The Bank of England...