UK’s central bank says stronger rates response needed to fight inflation

Bailey said the UK’s central bank might raise interest rates by more than it previously thought because of the government's huge energy bill support – which could lower inflation in the short term but push it up further ahead – and whatever it decides to do on tax cuts and spending. He said the bank’s MPC (Monetary Policy Committee) would respond in around three weeks’ time.

Bailey said he and Britain's new finance minister Jeremy Hunt had agreed on the need to repair the country's public finances after the tax cut plans announced by Hunt's predecessor triggered bond market turmoil.

Speaking in Washington where British officials attending International Monetary Fund meetings have been put on the spot about the crisis engulfing the country, Bailey said he had spoken to Hunt on Friday after he replaced Kwasi Kwarteng.

"I can tell you that there was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that," Bailey said.

Prime Minister Liz Truss, seeking to save her term in office, which is barely a month old, said on Friday that Britain's corporation tax rate would increase, reversing a key pledge made during her bid for Downing Street.

Hunt said earlier on Saturday that some taxes might have to rise, and others might not fall as much as planned, signalling a further shift away from Truss's original plans.

Bailey spoke at an event organised by the Group of Thirty, which comprises financiers and academics.

Truss criticised the central bank during her leadership campaign, saying she wanted to set a "clear direction of travel" for the central bank. Bank of England officials pushed back at those comments saying their independence was key to managing the economy.

In the shorter term, the BoE will be keeping a close eye on how financial markets behave on Monday after it ended its emergency bond-buying programme on Friday.

Reuters