BoE’s Ramsden warns upside inflation risks may spur rate hikes
- BoE's Dave Ramsden sees increasing upside risks to the UK inflation outlook.
- Energy, food prices and supply-chain pressures remain key inflation risks.
- Further inflation pressures could create a case for higher interest rates.
Bank of England (BoE) Deputy Governor Dave Ramsden said on Monday that risks to the inflation outlook have become increasingly tilted to the upside, according to Reuters.
Ramsden said he remains focused on external pressures from energy prices, weather and Artificial Intelligence (AI) supply chains, alongside domestic risks from food prices and potential second-round effects.
The BoE policymaker added that if upside inflation pressures continue to build, there could be a case for raising the bank rate. However, Ramsden does not expect the central bank to consider further Quantitative Easing (QE) anytime soon.
Ramsden flags upside inflation risks, keeping GBP supported
BoE’s Ramsden scores 8.4/10 on FXS Speechtracker, notably above the historic 7.1/10 baseline, signalling a stronger-than-usual policy impact. The focus on external inflation pressures from energy, weather and AI-related supply chains, alongside domestic indirect effects in food prices and potential second-round effects, marks a clear hawkish tilt.
By stating that risks to the inflation outlook have shifted to the upside and that continued upside pressures could justify increasing Bank Rate, Ramsden reinforces expectations that the BoE may need to keep policy tight or even re-tighten. This hawkish bias is supportive for GBP, especially against the Euro and Dollar, as markets reassess the probability of renewed rate hikes or a prolonged high-rate stance.
Market reaction
The British Pound (GBP) shows no significant reaction to Ramsden’s hawkish comments. GBP/USD remains higher, gaining 0.21% on Monday to trade around 1.3250 at the time of writing.
BoE FAQs
The Bank of England (BoE) decides monetary policy for the United Kingdom. Its primary goal is to achieve ‘price stability’, or a steady inflation rate of 2%. Its tool for achieving this is via the adjustment of base lending rates. The BoE sets the rate at which it lends to commercial banks and banks lend to each other, determining the level of interest rates in the economy overall. This also impacts the value of the Pound Sterling (GBP).
When inflation is above the Bank of England’s target it responds by raising interest rates, making it more expensive for people and businesses to access credit. This is positive for the Pound Sterling because higher interest rates make the UK a more attractive place for global investors to park their money. When inflation falls below target, it is a sign economic growth is slowing, and the BoE will consider lowering interest rates to cheapen credit in the hope businesses will borrow to invest in growth-generating projects – a negative for the Pound Sterling.
In extreme situations, the Bank of England can enact a policy called Quantitative Easing (QE). QE is the process by which the BoE substantially increases the flow of credit in a stuck financial system. QE is a last resort policy when lowering interest rates will not achieve the necessary result. The process of QE involves the BoE printing money to buy assets – usually government or AAA-rated corporate bonds – from banks and other financial institutions. QE usually results in a weaker Pound Sterling.
Quantitative tightening (QT) is the reverse of QE, enacted when the economy is strengthening and inflation starts rising. Whilst in QE the Bank of England (BoE) purchases government and corporate bonds from financial institutions to encourage them to lend; in QT, the BoE stops buying more bonds, and stops reinvesting the principal maturing on the bonds it already holds. It is usually positive for the Pound Sterling.