Bank of England governor Andrew Bailey hints at the sharpest rise in interest rates in 30 years

That Bank of England last night indicated the steepest rise in interest rates in almost 30 years.

governor Andrew Bailey said a 0.5 percentage point increase to handle the surge inflationwould be “on the table” when the bank’s monetary policy committee meets in two weeks.

That would be the biggest hike since 1995 and would take interest rates to 1.75 percent, the highest since December 2008.

Difficult decisions: Governor Andrew Bailey

Inflation is at a 40-year high of 9.1 percent and is expected to rise further.

Mr Bailey said the bank would “act with vigour” if it saw signs of inflation embedded in the economy. “A 50 basis point raise will be on the table at our next meeting,” he added.

It came as Nadhim Zahawi pledged last night to seize Brexit opportunities.

In his first official speech as Chancellor at London’s Mansion House, he said legislation introduced today to reform EU insurance rules will “unleash growth in our financial services sector and allow us to unlock tens of billions of dollars in investment”.

Mr Bailey went on to say the UK economy had endured an “almost unprecedented” series of shocks over the past two and a half years as it was rocked by the Covid-19 outbreak and supply chain disruptions caused by the end of the lockdown Restrictions, the Russian invasion of Ukraine and difficulties faced by British companies in recruiting workers.

A 0.5 percentage point rise would be the sharpest rise since the bank became independent in 1997. Image: The Bank of England

The governor said the war in Ukraine is now “in some ways the biggest contributor to UK inflation” as the conflict has caused energy prices to spike and disrupted key global supply chains, causing shortages and rising costs.

With that in mind, he said the bank would “act with vigour” if it saw any signs of inflation taking hold of the UK economy.

“Put simply, that means there will be a 50 basis point raise on the table at our next meeting,” he said.

Interest rates were cut to a record low of 0.1 percent during the Covid-19 pandemic as the bank tried to prop up the economy.

But the risk of rising inflation has forced it to raise interest rates five times in a row since December, taking it to 1.25 percent, its highest level since January 2009.

A 0.5 percentage point increase would be the largest since the bank became independent in 1997.

It will also drive up mortgage costs for millions of borrowers as high-street banks quickly hike their own rates, following the example of the Bank of England.