Legal & General has warned that the Bank of England will be forced to raise interest rates higher for longer because of its caution in fighting resurgent inflation. Daily Telegraph. The Independent. The Guardian. Financial Times
ritain's biggest investor believed the base rate would need to rise to 6% to slow the economy because the Bank has been too slow to raise rates over the past year.
James Carrick, investment strategist at L&G, said: 'The slower the MPC acts, the higher interest rates might ultimately need to peak.'
In its quarterly inflation report yesterday, the Bank admitted that inflation would only fall to its 2% target within two years if rates rise by another quarter point to 5.75%. If they remain at 5.5%, the target will be overshot.
But Mervyn King, governor, denied the Bank had been caught napping on inflation.
'Other people have to decide whether we made mistakes,' he said. 'We have raised rates four times and the people who said they were surprised and we were over-reacting now say we've under-reacted.'