The Bank of England has no “secret plan” to unconditionally increase interest rates, the governor of the central bank has said.
Andrew Bailey, governor of the Bank of England, told MPs at Parliament’s Treasury Committee there are still “upside” risks to inflation, meaning it is more likely to overshoot forecasts than undershoot.
But he stressed that expectations from the financial markets that interest rates will increase do not mean that this will definitely take place.
Mr Bailey told the committee: “The risks are on the upside, the risk particularly being with energy prices.
“What I want to dispel is the idea that we have a secret plan and we know where we are going to go to.”
UK interest rates currently sit at 3.75% but economists have widely predicted at least one increase over the next year amid expectations that inflation will tick higher.
Next week, the Bank of England’s monetary policy committee will meet again to vote on whether to increase, hold or reduce rates.
Megan Greene, an external member of the MPC who voted in favour of an increase last month, told MPs that she has concerns over volatile energy and commodity costs.
She said: “The conflict has been six months now so that worries me in terms of volatility down the line.
“We face such incredible uncertainty so, in my view, it is appropriate to take a risk management strategy and think about how you manage your losses.
“I wouldn’t be surprised if we didn’t have conclusive evidence on second round effects until next year at some point.
“Ultimately, we need to make a judgment now rather than wait for conclusive evidence of second round effects.”
Mr Bailey also indicated that the continuing Middle East conflict could potentially drive energy prices higher.
“To state the obvious, the conflict is still going on and causing a high level of energy prices,” he said.
“Quite a bit of volatility in energy prices is feeding through into financial markets.
“We have higher energy prices and they could be higher still.”
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