Bank of England (BoE) Deputy Governor Ben Broadbent has said the level of interest rate rises being priced into the market may be larger than what is actually required in a speech today.
Markets are currently forecasting rates to be at around 5.25% by the middle of 2023 but Broadbent said the need for such a large rise “remains to be seen”.
He said that inflation was being driven by higher import prices on commodities such as gas and food which should reduce as prices stabilise.
Broadbent said: “It remains the case that most of the overshoot in headline CPI inflation, relative to target, reflects the direct impact of higher import prices.
“It also remains likely that much of this is likely to fade as those prices stabilise. This appears already to be happening in areas most affected by the pandemic.”
He added that while the need for tighter fiscal policy “is clear” it is likely that demand for imports, along with higher prices will slow.
As such he said: “Whether official interest rates have to rise by quite as much as currently priced in financial markets remains to be seen.”
Following his speech markets have reduced the predicted chance of a 1% interest rate rise in November to 15%, before Broadbent’s comments it stood at 25%.
