Interest rates may have to be raised again, higher than initially expected in order to tackle inflation, according to the Governor of the Bank of England.

In a speech in Washington, Andrew Bailey reiterated that Bank officials will “not hesitate” to raise interest rates if necessary to tackle inflation, while warning that a “stronger” response than previously anticipated could be required.

This comes as Bailey said that he spoke to the new Chancellor Jeremy Hunt on Friday and had an “immediate meeting of minds”.

Hunt will now deliver the Government’s fiscal plan at the end of the month, a statement the new Chancellor has admitted will be more akin to a full Budget.

In his short address today Bailey acknowledged what he called the “violent moves” in the UK markets as he signalled that interest rates could be in line to increase again.

On September 22 the Bank’s Monetary Policy Committee (MPC) raised rates by 0.5 percentage points to 2.25%.

Speaking at the G30 annual international banking seminar, Bailey said: “The UK Government has made a number of fiscal announcements and has set October 31 as the date for a further fiscal statement.”

Bournemouth Echo: Interest rates could rise again, says Bank of England governor (PA)Interest rates could rise again, says Bank of England governor (PA) (Image: Newsquest)

He said that the Bank’s monetary policy committee “will respond to all this news at its next meeting in just under three weeks from now”.

Bailey added: “This is the correct sequence, in my view. We will know the full scope of fiscal policy by then but I will repeat what I have said already: We will not hesitate to raise interest rates to meet the inflation target.

“And, as things stand today, my best guess is that inflationary pressures will require a stronger response than we perhaps thought in August.”

Taking questions after his address, Bailey said: “I can tell you that I spoke to Jeremy Hunt, the new Chancellor, yesterday.

“I can tell you that there was a very clear and immediate meeting of minds between us about the importance of fiscal sustainability and the importance of taking measures to do that.”

He continued: “It’s not appropriate for me to constrain the choices he makes, but the very clear message I would give, and it is a clear message for everybody, including a clear message for markets…

“I can tell you there is a very clear and immediate meeting of minds on the importance of stability and sustainability.”

What are interest rates and why are they going up?

According to the Bank of England, interest rates are going up due to the rapid increase in inflation.

Inflation is the rate at which the prices of goods and services increase, so to keep this low and stable, the bank must increase interest rates.

This is commonly known as ‘the base rate’ or just ‘the interest rate’.

Bank Rate influences all the UK’s other rates, including those you might have for a loan, mortgage, or savings account.

The Bank of England raised the Bank Rate from 0.1% last December, to 2.25% now. The most recent increase of 0.5 percentage points happened on 22 September of this year.

The Bank of England has said that rising energy costs are the main reason why inflation is so high currently.

It said: “In particular, Russia’s invasion of Ukraine led to big increases in the price of gas. The war in Ukraine has also increased food prices.”

The Government cap on energy bills means that the bank now expects inflation to rise slightly further.

The rate of inflation is currently about 10% with it previously expected to rise to about 11% in October.