Bank official warns of early interest rate rise as Kraft Heinz puts up prices

Baked beans maker is latest firm to talk of food price rises, as inflationary pressures mount

A Bank of England policymaker has warned households to get ready for “significantly earlier” interest rate rises as inflation pressures mount, and Kraft Heinz became the latest company to say that food prices will rise.

Michael Saunders, one of the Bank’s nine rate-setters, said investors were right to bet on faster increases in borrowing costs with consumer price inflation on course to rise above 4%, adding to signs Threadneedle Street might become the first major central bank to raise rates since the coronavirus pandemic struck.

“I’m not in favour of using code words or stating our intentions in advance of the meeting too precisely. The decisions get taken at the proper time,” Saunders said in an interview with the Telegraph. “But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that’s appropriate.”

His comments come as households face mounting energy bills and the prospect of higher food prices. The boss of Kraft Heinz said on Sunday the company, the maker of Heinz tomato ketchup and baked beans, was putting up prices in several countries.

“We are raising prices, where necessary, around the world,” Miguel Patricio told the BBC, adding there were a number of reasons behind the rises.

“Specifically in the UK, with the lack of truck drivers. In [the] US, logistic costs also increased substantially, and there’s a shortage of labour in certain areas of the economy,” he said.

Iceland, the UK frozen food chain, has recently warned that “price rises are inevitable”, while Tesco and the Co-op are among the food retailers to have given similar warnings.

Last month the Bank of England’s monetary policy committee voted unanimously to keep rates at 0.1%, an all-time low, despite annual inflation running at 3.2%, the highest level in more than nine years and above the Bank’s 2% target.

However, Saunders and Dave Ramsden, a deputy governor, voted to cut short the limit on the central bank’s £895bn quantitative easing programme by £35bn.

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Saunders said markets had fully priced in a February rate rise by the UK central bank and had half priced in a December increase in borrowing costs.

“I’m not trying to give a commentary on exactly which one, but I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously,” he said.

The comments by Saunders came shortly after the Bank of England governor, Andrew Bailey, said inflation running above the central bank’s 2% target was concerning and had to be managed to prevent it from becoming permanently embedded.

“We are going to have a very delicate and challenging job on our hands, so we have got to, in a sense, prevent the thing becoming permanently embedded because that would obviously be very damaging,” Bailey told the Yorkshire Post newspaper.

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Angela Monaghan and agencies

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