- Written by Tom Espiner & Darshini David
- bbc news
Bank of England Governor Andrew Bailey said interest rates were nearing their peak but could still rise.
He told lawmakers that we are “very close to the top” of the rate hike cycle.
The World Bank has raised interest rates for the 14th time in a row to slow the pace of price growth, the fastest of any of the world’s largest economies.
Borrowing costs are expected to rise again later this month, with central bank interest rates expected to reach 5.5%.
The theory is that raising interest rates will make borrowing more expensive, causing people to spend less, reducing demand and slowing inflation, the rate at which prices rise.
However, central bank interest rates are currently at 15-year highs and inflation remains high.
Inflation for the year to July fell to 6.8% from 7.9% in June, but remains well above the government’s 2% target.
Mr Bailey told MPs on the Treasury Select Committee that there was evidence that the economy may be slowing.
But it’s unclear how much that will slow wage growth, which recently hit record highs. Wage increases can increase inflation.
“Many of the indicators are currently trending in line with our expectations, suggesting that the decline in inflation is here to stay and, as I have said many times, I think it will be quite noticeable by the end of this year.” ” He said.
“The question now is, as headline inflation declines, will inflation expectations continue to decline? And will that be reflected in wage negotiations?” he added.
UK economic activity may be dampening as borrowing costs soar, but the central bank is keeping an eye on rapidly rising wages.
Mr Bailey’s comments mean that interest rate hikes in coming months may be smaller than markets expected, but the next decision on September 21 will still be based on the latest evidence, including data on employment, growth, wages and inflation. He emphasized that it depends.
He also reiterated previous statements that interest rates may remain high for some time.
So far, more than half of mortgage holders have been affected by rising interest rates, and many more are expected to be squeezed as their fixed rate contracts expire in the coming months.
They could see their monthly repayments increase by hundreds of pounds or more.