Bank warns interest rates will rise 'as much as necessary' to contain inflation

The Bank of England today warned that 'she was prepared to raise interest rates "as much as necessary" to contain inflation.

But Governor Andrew Bailey rejected suggestions that the monetary policy committee tasked with setting rates could hold an emergency meeting to force an immediate hike, insisting any changes would come at their scheduled meeting in November.

The warning came amid panic in markets over from Friday's mini-budget, which triggered a sharp drop in the value of the pound, which hit a record low just above $1.03 against the US dollar in early trading today. p>

Traders have been spooked by the prospect that Chancellor Kwasi Kwarteng's unfunded £45billion tax giveaway will fuel inflation.

Within minutes of markets closing ed, Mr. Bailey released a statement making it clear that the MPC, which he chairs, is ready to act to bring rising prices under control.

Mr. Bailey said the Monetary Policy Committee (MPC) would discuss the impact of the Chancellor's new mini-budget at its next meeting in early November - quashing speculation that the Bank could announce emergency measures this week.

"As the MPC has made clear, it will carry out a full assessment at its next scheduled meeting of the impact on demand and inflation of the announcements of the government and the fall of the pound sterling, and will act accordingly,” he said.

“The MPC will not hesitate to change interest rates as much as necessary to bring the 'inflation at the 2% target in a sustainable way over the medium term.'

The statement came minutes after Mr rules for the government, after the rules he inherited from his predecessor Rishi Sunak were torn on Friday.

Most importantly, he also revealed that the government's spending watchdog ent, the Office of Budget Responsibility, will be permitted to publish its assessment of the impact of its changes alongside the statement. The OBR was prevented from doing so last Friday on the grounds that the Chancellor's package was not a full budget.

With inflation currently at 9.9% and interest rates the only the Bank's leverage to reduce it, Mr. Bailey's ambition to bring it back to the 2% medium-term objective implies a desire to introduce further sharp increases in the base rate.

And his comment that the policy rate will be allowed to rise "as much as necessary" will fuel expectations that it could reach levels even higher than the 6% predicted by some traders - driving up lending mortgages and the cost of borrowing.