The Bank of England has received a boost in its fight against inflation in the short term from Prime Minister Liz Truss' stimulus package. Waima remains poised to raise interest rates sharply next week.
The tariff cap announced by Truss on Thursday, which is expected to cost 100 billion pounds ($116 billion) or more over two years could push inflation up to five percentage points, according to economists.
Policymakers are still worried about inflation expectations taking root in the economy, but will be far more worrying than the scenario without government intervention.
To counter that, the BoE could raise rates faster and higher than expected, starting with the September policy announcement next Thursday. George Buckley, an economist predicts a rate hike of half a percentage point on September 15 – which would match last month's increase.
New finance minister Kwasi Kwarteng is expected to announce an emergency budget, including tax cuts, later this month. In addition to raising rates, the BoE will begin selling the stock of British government bonds that began to accumulate after the global financial crisis of 2007-08.
