Bailey defends Bank’s bumper rate hike
Bailey defends the Bank’s massive rate hike, describing it as a ‘really pretty strong move’ to curb inflation
Andrew Bailey yesterday defended the Bank of England’s ‘very strong move’ to curb inflation with a hefty rate hike – hinting that it may be some time before borrowers see relief from high interest rates.
Speaking at a conference in Portugal, the bank governor also said officials were watching “very carefully” for signs that the UK economy could slip into recession.
It comes after an unexpectedly steep rise in interest rates from half a percentage point to 5 percent last week, a day after official figures showed inflation at a stubbornly high 8.7 percent.
Some experts believe the bank is trying to trigger a recession to halt rising prices, something Bailey has denied.
Financial markets are betting that the Bank of England interest rate will reach 6.25% in the coming months.
Bank of England governor Andrew Bailey (pictured) said officials were watching ‘very carefully’ for signs the UK economy could slip into recession
Higher interest rates are already hurting the mortgage market.
Rates for two-year fixed deals now average above 6 percent, and five-year deals are also climbing close to that level.
Bailey told the European Central Bank forum on central banking in Sintra: “I can understand why there are critics of us and central banks…[but] we have work to do. I am very clear that our job is to bring inflation back to target and we will do whatever it takes.
“I understand the concerns associated with that, but… it’s a worse outcome if we don’t get inflation back [the 2 per cent] goal.’
The latest figures turned out worse than the Bank feared.
Economists are particularly concerned that a measure of “core” inflation — which excludes volatile factors such as food and energy costs — is heading in the wrong direction, rising to 7.1 percent, according to the latest data.
“The cumulative data, both labor market in particular and inflation that we had, which showed clear signs of persistence for us, led us to conclude that we really had to make a pretty strong move,” Bailey said.
He also seemed to suggest that Bank interest rates could remain high for longer than expected.
“I’ve always been interested in the market thinking the spike will be fairly short-lived in a world where we’re facing more stubborn inflation,” he said.
When asked if the market was right to predict higher rates, Bailey replied; ‘We will see.’
But the governor said the UK economy had held up better than expected despite the wave of rate hikes and global economic turmoil.
Asked about recession risks, he said: “We’re not predicting it at the moment, but of course we have to keep a very close eye on it.”