David Milliken

LONDON, (Reuters) – The Bank of England may need to increase interest rates slightly in the next few months but the Bank of England’s longer-term trajectory is difficult to forecast due to uncertainty including the Russia-Ukraine war, Deputy Governor Dave Ramsden stated on Tuesday.

Although the BoE increased interest rates by 0.5% from 0.25% to 0.5% in this month’s meeting, Ramsden was one of few who voted to increase them to 0.75%. This would have marked the first half point rise since 1997, when BoE independence.

Investors have priced in another rate increase at the BoE’s next meeting, which will conclude on March 17.

Ramsden stated that “some further modest tightening of monetary policy will likely to be appropriate over the coming months,” echoing the BoE’s recent statements.

He said that the word “modest” is important here. However, I don’t see Bank Rate increasing to levels comparable to its 2007 level of 5% or higher.

The BoE rate is expected to rise to close to 2% in the final year of 2019, according to financial markets. That’s a far higher level than the BoE forecasts on February 3, which suggested that it would need to reach its target inflation of 2% by 2024.

Ramsden explained that new shocks may occur – we didn’t foresee recent increases in energy prices. As we face today, the Ukraine crisis is intensifying. We should be humble and open to the possibility of things turning out differently.

He said, “This makes it difficult to predict where monetary policy will go in the medium-term.”

British inflation soared to 5.5% in January, its highest level in 30 years. It will reach 7.25% by April when an increase of 54% in the regulated household electricity tariffs.