Bank of England boss Andrew Bailey rejects lifting inflation target from 2%
Bank of England boss Andrew Bailey signals interest rate pain coming as he insists it will not deviate from his target of bringing inflation down to 2%
- Bailey said it was “absolutely critical” that there should be no confusion about the target
- Bank is struggling to get close with inflation currently at 8.7 percent
- Comments are likely to bolster expectations of an aggressive series of increases
Steadfast: Bank boss Andrew Bailey
Bank of England Governor Andrew Bailey has signaled further interest rate pain to come as he insisted he will not deviate from his target of bringing inflation down to 2 per cent.
Bailey said it was “absolutely crucial” that there be no confusion over the target, even as the Bank struggles to get close with inflation currently at 8.7 percent.
The comments are likely to bolster market expectations that interest rate setters will continue an aggressive series of hikes even as they threaten to drag the economy into recession.
The Bank raised interest rates from 0.1 percent in December 2021 to 5 percent today, and traders are betting they will reach 6.5 percent in the coming months.
That puts a painful strain on mortgage borrowers who see hundreds of pounds added to their monthly repayments. The determination to bring inflation down to 2 percent is likely to add to that pain.
Bailey’s comments came at a conference in France – where he acknowledged that the UK was facing a “more serious” inflation problem than other countries – where it has fallen faster.
He said the bank had some leeway on when to bring inflation down to 2 percent, but added: “It’s absolutely crucial that that flexibility isn’t confused with people who think we’re not aiming for 2 percent anymore. ‘ The comments come amid calls in some quarters for the 2 percent level — which most central banks are targeting — to be changed.
Proponents of the change say that by raising the target, say, to 3 percent or even 4 percent, rare-setters can give themselves more flexibility and save some of the pain that could come from sticking to the lower level.
But Bailey defended the 2 percent target, saying it was low enough that consumers don’t have to constantly worry about rising prices when making day-to-day economic decisions.