(Bloomberg) --

Bank of England Governor Andrew Bailey said the cost-of-living crisis is holding back the UK economy and that policy makers will take that into account in gaging how much to raise interest rates.

Appearing on a conference panel on Monday, Bailey also pushed back against recent political criticism of the BOE, saying that its response to the pandemic wasn’t responsible for the “painful” rise in inflation the UK is experiencing.

“The choice of policy actions is influenced by the nature of the shock we are facing,” Bailey said, according to a text of prepared remarks released by the BOE. “In the UK we are facing a very big negative impact on real incomes caused by the rise in prices of things we import, notably energy. We expect that to weigh heavily on demand.”

The remarks highlight the conflicting forces the BOE is having to balance as it aims both to rein in inflation, which has leaped to a 40-year high, and keep the economy recovering from the pandemic. 

Price gains have been stoked by a tight labor market, rather than soaring demand, Bailey said. He note that while much of the acceleration inflation is down to the shock of Russia’s invasion of Ukraine.

While policy couldn’t have stopped inflation from hitting a four-decade high, officials were prepared to respond and will look at what higher costs for consumers are doing to the economy, he said.

“We judge the appropriate degree of monetary tightening taking that into account,” Bailey said.

Still, Bailey said that the bank would hike again if needed to bring inflation down in the medium term.

“We have raised the official rate four times so far and have made clear that in order to bring inflation down to target we are prepared to do so again based on the assessment at each of our meetings,” he said.

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