Bank governor warns of no quick victory in battle against inflation
The governor of the Bank of England warns that there is no quick victory in the fight against inflation
Bank of England Governor Andrew Bailey has admitted that the wage and price spiral unleashed by inflation may take longer to bottle up than to emerge.
The Bank has raised interest rates sharply in a battle to tackle inflation, which has remained at double digits.
It predicts it will fall in the coming months – although last week’s forecasts suggested it will still be above 5 percent by the end of 2023.
But Bailey, speaking to the British Chambers of Commerce, said there was still a significant risk that it could remain high.
Caution: Bank of England Governor Andrew Bailey (pictured) said in a speech to the UK Chambers of Commerce that there is still a significant risk of inflation remaining high
The Bank is concerned about so-called ‘second round’ effects. These occur when the initial cost spike, caused by an external shock such as the war in Ukraine, sets off a pattern of companies raising prices and workers demanding higher wages.
Bailey warned, “We believe second-round effects may take longer to wind down than they did before they showed up.”
But he reiterated the Bank’s slightly more optimistic outlook for economic growth, which no longer forecasts a recession. It comes a day after the latest jobs figures, closely monitored by the Bank, showed an increase in vacancies and a decrease in the number of employees.
Bailey said there were signs that the labor market was “loosening up a bit” and that wage growth could ease further later this year – something that would point to a reduction in inflationary pressures.
But he added that easing was slower than expected in February.