One more interest rate rise ‘probable,’ warns NatWest chairman as he says ‘we are worse off’
12 May 2023, 08:31 | Updated: 12 May 2023, 08:39
The ‘pain’ of the cost of living crisis could be worse and successive interest rate rises are showing ‘some success,’ the chairman of NatWest has told LBC.
Chairman of NatWest Sir Howard Davies, told Nick Ferrari this morning that ‘things could be worse’, as he remembered putting interest rates up to 18 per cent to get inflation down. “We have to remember that there is something worse than the situation we are in at the moment,” he said.
His comments came as the UK economy grew by just 0.1% in the first quarter of 2023.
“The pain of embedded inflation for a long period is something we’ve also experienced in this country,” said Sir Howard, who announced that he will step down from his role at the UK high street bank by the middle of next year.
Nat West boss comments on interest rate rises
“I know what it’s like when you have inflation that is stubborn. We have to remember that there is something worse than the situation we are in at the moment.”
“We are more inflation prone than the US and the rest of Europe. We’ve had less resistance in this country to rising prices.
“We have a tendency to higher inflation.
“I think there is a sign of some success of the policy [of successive interest rate rises’].
He said one more interest rate rise would be ‘probable’ and that he is ‘pretty certain’ that the double digit inflation rate would fall next month.
“We are worse off. We have seen decline in real incomes. If we want to catch up we have got to have increased investment and higher productivity.”
Ministers were met by leading supermarkets in the UK after the Bank of England Governor Andrew Bailey blamed stubbornly high food prices for driving inflation, impacting its decision to raise interest rates once again.
It comes after the Bank of England increased its interest rate to 4.5 per cent on Thursday, taking the rate to its highest level since 2008.
"Supermarkets in Britain are highly competitive but the wholesale price of goods has increased significantly due to energy and labour costs," a government source told The Times.
It was the 12th time in a row that the bank took the decision to raise interest rates, which was "terrible" for people on variable mortgages, and "mortgage prisoners" - those unable to move their mortgage providers, according to Martin Lewis.
Money saving expert Martin Lewis told Andrew Marr: "For those coming off fixes, if you can get a cheaper deal, this has very little impact, because future rises are already factored in.
"And if you look at the mortgages, interestingly, five-year fixes are cheaper than two year fixes. What's called an inverse yield curve."
Watch Again: Nick Ferrari questions Natwest chairman Sir Howard Davies
It comes after it was revealed that the price of British food staples, including cheddar cheese, white bread and porridge oats, have soared compared with one year ago.
The price of cheddar cheese has seen the largest increase, rising by an average of 28.3 per cent across Aldi, Asda, Lidl, Morrisons, Ocado, Sainsbury's, Tesco and Waitrose.
In one case, Dragon Welsh Mature Cheddar (180g) at Asda increased by 80 per cent in the three months to the end of March last year (£1 to £1.80).
Overall, food inflation has continued to increase, rising to 17.2 per cent in March - up from 16.5 per cent in February, according to Which?
Read More: Interest rates rise to 4.5%, the highest level since global financial crisis 15 years ago
Asked if rates have peaked, Paul Johnson, director of the Institute for Fiscal Studies, told Andrew that financial markets are expecting further increases.
He added: "And the extent to which inflation really does seem to become embedded may lead the bank to do more.
"So, I'm not saying we will get more increases, but I think relative to expectations a few months ago, which thought we would be peaking at 4.25% or 4.5% where we are now, there's more chance, actually, than there was a couple of months ago that there, I'm afraid, might still be further to go."
IFS director on public sector pay
Meanwhile, speaking after the rise, Chancellor Jeremy Hunt said the Bank of England had predicted that the government was on course to meet its target of halving inflation this year, but said it was not "automatic".
Asked whether he was confident of meeting Mr Sunak's inflation target, Mr Hunt said: "The Bank of England is predicting that we will hit the inflation target.
"But there has never been anything automatic about hitting it.
"That is why it is so important, if we're going to bring certainty back to family finance, stop prices rising, that we stick to our plan to halve it."
