BoE's Ramsden Sees Further Tightening, Uncertain Outlook

The Bank of England will need to raise interest rates slightly more over the coming months, but their longer-term path is hard to predict due to uncertainties including the Russia-Ukraine conflict, Deputy Governor Dave Ramsden said on Tuesday.

The BoE raised interest rates to 0.5% this month from 0.25%, but Ramsden was part of a minority who voted for a bigger increase to 0.75%, which would have been the first half-point rise since BoE independence in 1997.

Investors are pricing in another rate hike at the BoE's next scheduled meeting which concludes on March 17.

"Some further modest tightening in monetary policy is likely to be appropriate in the coming months," Ramsden told the National Farmers' Union annual conference, echoing recent language from the BoE.

"The word 'modest' is significant here though - I do not envisage Bank Rate rising to anything like its pre-2007 level of 5% or above, let alone to the kind of levels we used to see before the MPC was formed in 1997," he added.

Financial markets currently price in BoE rates rising to nearly 2% by the end of this year -- well above the levels which the BoE's forecasts published on Feb. 3 suggested would be needed to get inflation back to its 2% target by early 2024.

"New shocks can arise - we did not foresee the recent rise in energy prices, and as we meet today the crisis in Ukraine is intensifying - and so we should remain humble about the possibility that things might turn out differently," Ramsden said.

"(This) makes it particularly difficult to make predictions about where monetary policy might be headed in the medium term," he added.

British inflation hit its highest in nearly 30 years in January at 5.5%, and the BoE expects it to peak at around 7.25% in April when a 54% rise in regulated household energy tariffs takes effect.