March 1, 2024


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Bank of England boss vows to ‘see the job through’ on reducing inflation | Inflation

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The Bank of England governor has signalled further interest rate pain is in store for mortgage holders and businesses as he said Threadneedle Street had to “see the job through” on reducing inflation.

Hinting that a 14th successive increase in the cost of borrowing would be announced next month, Andrew Bailey is expected to tell the City’s elite at the Mansion House dinner on Monday night that inflation is “unacceptably high”.

In a speech the governor will say current levels of price and wage increases are inconsistent with reducing inflation – now at 8.7% – back to the government’s 2% target.

He is expected to say: “Over the last 20 months, we have raised Bank rate by nearly five percentage points. Some of that tightening is still to come through the policy pipeline, and we expect underlying inflationary pressures to recede as headline inflation falls.

“But the monetary policy committee is monitoring developments – in particular, those in the labour market, in wage growth and in services price inflation – to assess whether pressures are proving more persistent.”

The next set of official wage growth figures will be released on Tuesday and the June cost of living data is due out on 19 July. Both will have a crucial bearing on what happens next to interest rates, which stand at 5%. The financial markets currently think the Bank will need to raise rates above 6% to bring inflation back under control.

Bailey will say: “It is crucial that we see the job through, meet our mandate to return inflation to its 2% target, and provide the environment of price stability in which the UK economy can thrive. This is the best contribution monetary policy can make to the prosperity of the United Kingdom.”

In his speech, the governor will say the UK economy has been hit by a series of external inflationary shocks: higher goods prices in global markets owing to supply bottlenecks created by the pandemic, and higher energy and food prices linked to Russia’s invasion of Ukraine.

“Looking ahead, UK headline inflation is set to fall markedly over the remainder of the year. This largely owes to lower energy prices as last year’s substantial increases drop out of the annual calculation. Food prices should fall too as lower commodity prices feed through to prices in the shops,” Bailey will say.

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Even so, the economy had shown unexpected resilience, with unemployment below 4% and the economy avoiding recession.

“No one wishes to see unemployment higher or growth weaker. But the interaction of above-target headline inflation with labour market tightness and demand pressure in the economy has made underlying developments in goods and services price inflation more sticky than previously expected. Both price and wage increases at current rates are not consistent with the inflation target,” Bailey will say.


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