Feb 2, 2023
BOE Governor Warns UK Has a ‘Long Way To Go’ on Inflation Fight
(Bloomberg) -- Bank of England Governor Andrew Bailey warned UK households that there was still a “long way to go” before the cost-of-living crunch is brought under control.
The central bank chief said that while inflation is likely to fall this year, the risks around that forecast are to the upside and that it’s too early to declare victory in the battle against soaring prices. His remarks followed a half-point increase in bank’s key rate to 4%.
“We have started to turn a corner, but there’s a long way to go and there’s a lot of risks,” Bailey said in an interview on Bloomberg TV on Thursday.
The Consumer Prices Index peaked last year at a 41-year high of 11.1% and slipped back to 10.5% in December. New forecasts released by the BOE suggest inflation will slip below the 2% target to average 1.5% in 2024 and 0.5% in 2025.
“Low and stable inflation is the foundation of a healthy economy,” Bailey said in a clip released by the BOE on social media. “We need to be absolutely sure that we get inflation down.”
“That’s why we have raised interest rates. It’s too early to declare victory. But inflation appears to have turned a corner and is starting to fall.”
While the BOE on continued its longest string of consecutive rate rises in three decades, markets took the latest decision from the Monetary Policy Committee to be slightly dovish.
Despite Bailey’s warnings that there were significant upside risks to the inflation projections, the MPC’s most hawkish member, Catherine Mann, abandoned her calls for a 75 basis-point hike. And the Bank dropped the word “forcefully” from its forward guidance on rates.
Speaking to Bloomberg, Bailey said, “We are going to react to the information and the evidence that we see. We haven’t pre-announced an intention.”
A pause in the Bank’s rate-hiking cycle would come as a relief to mortgage-holders and businesses, who have seen their finances squeezed by the rising cost of borrowing.
Markets now think the base rate will peak just above 4.25% in June — but are still pricing in a rate cut before the end of the year.
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