Former BoE deputy governor warns of rapid rate hikes to quash inflation

The Bank of England has backed itself into a corner by refusing to hike interest rates despite inflation surging to historic highs, a former top official at the central bank has warned.

Inertia toward the soaring cost of living during the back end of last year means the Bank will have to rush through a cycle of rate rises, Sir Charlie Bean, an ex-deputy governor on Threadneedle Street, said today.

The warning comes as the US Federal Reserve is preparing to butter up markets for a rate hike cycle this year at its Federal Open Market Committee meeting on Wednesday.

Investors do not expect the Fed to kick off the rate hike spree until March, with most then forecasting a further three hikes during the rest of 2022.

On these shores, the Bank of England “has erred too much towards looseness through the course of the past few months,” Bean, also a former top dog at the Office for Budget Responsibility, said. 

Inflation in Britain took off during the second half of last year, led higher by a combination of an energy crunch on the Continent and global supply chains buckling under the weight of a sudden release in pent-up demand as countries scrapped Covid-19 restrictions.

However, the Bank held off on raising rates until the final month of the year, lifting them 15 basis points from a record low 0.1 per cent.

UK inflation is currently running at 5.4 per cent, the highest rate in nearly three decades.