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Bank of England Governor Andrew Bailey says more rate hikes are ‘not inevitable’
Bank of England Governor Andrew Bailey indicated yesterday that further rate hikes were not ‘inevitable’ – but warned that the ‘experience of the 1970s’ means it shouldn’t be complacent.
Bailey said “nothing has been decided” on whether rates, which have risen rapidly in response to rising inflation, should rise again.
At the next rate-determining meeting in three weeks, officials will have to decide whether or not to increase further after reaching 4 percent last month. Inflation is above 10 percent, but is expected to fall rapidly this year.
Uncertain: Andrew Bailey (pictured) said ‘nothing has been decided yet’ on whether rates, which have risen rapidly in response to rising inflation, should rise again
The Bank’s Monetary Policy Committee, which sets interest rates, is divided on whether a further hike is necessary to guard against renewed inflationary pressures.
Bailey told a cost-of-living conference in London that there was “no easy way out.” He acknowledged the pain the higher rates caused borrowers, but emphasized that the rise in prices meant that lower-income earners were “struggling to make ends meet.”
He added: “I would caution against suggesting that we are done raising bank rates, or that we will inevitably have to do more.
“A further increase in the bank rate may prove appropriate, but nothing has been decided yet.”
The language suggested that the bank would “want to spend time on its walking cycle as soon as possible,” said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Still, Bailey also expressed deep reservations about the mistakes made half a century ago when central banks seemed to be giving up the fight against inflation.
“If we do too little with interest rates now, we will only have to do more later,” he said. “The experience of the 1970s taught us that important lesson.”
The speech came as numbers showed the impact of higher borrowing costs and cost-of-living pressures. According to lender Nationwide, house prices fell by 1.1 percent in February compared to a year earlier.
Bank of England data showed that 39,600 mortgages were approved for home purchases in January, up from 40,500 in December and the lowest number since May 2020.
And the UK manufacturing sector gave a positive sign – after a business survey suggested a protracted downturn was coming to an end amid stronger demand and reduced supply chain disruption.
Signs that inflation is declining and that an expected economic downturn may not be as bad as feared have boosted financial markets. Still, data released from Germany yesterday showed inflation creeping up to 9.3 percent last month, up from 9.2 percent in January.