BoE Chief: Monetary Policy Is Stimulative, Fiscal Policy Is Restrictive

The inflation data of October and November will potentially be above 3 percent of level, "he said".

The Office for National Statistics said consumer price inflation was 3 per cent in the year to September, up from the previous month's 2.9 per cent.

Economic theory suggests an increase in interest rates pushes inflation down because it increases the value of the income derived on sterling assets to overseas buyers, increasing demand for those assets, pushing the value of the currency upwards.

Though he's spared that letter-writing, Carney and the others at the bank's rate-setting panel are expected to raise the benchmark rate by a quarter percentage point from the record low of 0.25% at the next policy meeting on November 2.

He also rejected the idea the Bank of England should increase interest rates for the goal of being able to reduce them if there was another recession.

Asked whether the MPC had enough interest rate "room" to deal with a possible recession, the Canadian responded: "Building a war chest in interest rate terms for a potential future shock isn't staying on point in terms of the inflation target, nor is it appropriate or necessary, given that policy can move quite nimbly if required". CPI index rose from 2.9 percent in August to 3 percent.

Thomas Wells, manager of the S&W Global Inflation-Linked Bond fund, said inflation is likely to remain high this year: "CPI inflation remains elevated and we would expect this to remain the case for the remainder of 2017".

Sterling dropped 0.41 percent to $ 1.3167.

"Not raising rates now, having led the markets up the garden path on several occasions over the years would be as equally damaging to the banks credibility". Mark Carney, the BoE governor, has stated his opinion that an interest rate hike is forthcoming. But there was some uncertainty as to how much more prices would rise in September.

He said the cut in interest rates implemented immediately after the European Union referendum result was the right thing to do to secure economic growth, but that the "trade off" between protecting against higher inflation and securing economic growth has changed, to the point where a rate rise would be unlikely to hamper growth, but could ease inflationary pressure. "This would not be the first time the Bank has talked the talk without walking the walk however, so it is probably best not to count those chickens until they are hatched".

September's inflation figures were the last before the meeting, giving the numbers even more clout. In the face of high inflation we are still seeing little wage growth so the pressure is continuing to grow on United Kingdom households.

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