Bailey said the central bank’s Monetary Policy Committee had an “absolute priority” to return inflation to the 2 percent target and faced the “biggest challenge” in controlling inflation since the bank gained independence in setting interest rates. in 1997. With June inflation figures likely to rise to another 40-year high of at least 9.3% on Wednesday, Bailey laid out the policy options being considered by the MPC. A rate hike of half a percentage point would be the biggest increase since 1995. The governor also expressed the BoE’s consideration for the first time of selling some of the assets it has bought under rounds of quantitative easing since 2009. “Put simply, that means a 50 basis point hike will be among the options on the table at the next meeting,” Bailey told an audience of financial and business leaders at the annual Mansion House dinner in the City of London. Financial markets are increasingly expecting the European Central Bank to also raise its key interest rates by half a percentage point on Thursday. Bailey said there was no guarantee the UK increase would be that big, adding that the committee would have to take into account the easing of global supply chain bottlenecks as well as higher gas, food and fuel prices after the Russian invasion of Ukraine.

“We are clear that we see the balance of risks to inflation to be on the upside,” Bailey said. The governor acknowledged that the rate rises would come at a time when people in the UK are getting poorer and struggling to access basic needs, saying the BoE had already taken that into account when setting monetary policy. In terms of asset sales, Bailey set a fairly aggressive timetable for reducing the level of government bonds he had bought, which peaked at £895bn. “Based on analysis conducted in conjunction with colleagues in the debt management office, we are currently looking at an overall reduction in the stock of wallets we hold. . . in the region of £50bn-£100bn in the first year,” Bailey said. While the governor acknowledged challenges in fighting inflation, Chancellor Nadhim Zahawi threw a protective arm around the BoE, saying it had a “strong track record” in controlling prices and had all the tools it needed to succeed. The bank has faced criticism from Tory leadership candidates, including Liz Truss, the foreign secretary, who has said she would tighten ministerial scrutiny of its operations if she became prime minister. Meanwhile, Zahawi confirmed the government was considering taking on powers to “intervene in financial regulation in the public interest”, a plan that has angered Bailey, who wants to maintain regulatory independence. But Zahawi said the government would consider all arguments before reaching a decision. The move is so controversial that any change to the rules will be left until September, when a prime minister and possibly a new chancellor will be appointed. The “call in” power, which is backed by Sunak, will not be included in the financial services bill to be published on Wednesday, but could be added if he becomes prime minister. Zahawi also pointed to the importance of reforms to Solvency II rules to allow UK insurers to invest more in infrastructure alongside other reforms to London’s capital markets to make it easier for companies to raise money. On Tuesday, the Treasury published the results of a review of the fundraising market by Freshfields lawyer Mark Austin, which recommended regulatory changes to increase the ability of companies to raise capital quickly and cheaply and ensure greater participation by retail investors. In response, the Financial Conduct Authority said this was in line with its “strategic priority to ensure that UK wholesale markets continue to be seen as one of the leading global markets of choice for issuers, intermediaries and investors, by identifying ways to streamline of further raising capital from publicly traded companies and promote investor access”.