Andrew Bailey said that the economic outlook is the worst of all times, and Britain is struggling to increase low levels in growth.
The Bank of England Governor expressed concern over UK future prospects, just days after the Office for Budget Responsibility slashed their predictions for growth in the next two-year period.
Mr Bailey, in an interview with The Chronicle, Newcastle, said that “if you look at the potential growth rate of the economy there’s no question it’s lower than in most of my career.”
It is concerning to me that the economic supply has slowed. “It does concern me quite a bit.”
According to the Bank’s most recent forecasts, the economy is expected to grow very little next year or by 2025.
The Monetary Policy Committee’s (MPC) nine members, including Mr. Bailey, are holding interest rates high because of their predictions that supply will be weak.
In response to a question about the rates, Mr Bailey stated that they were unlikely to be reduced in the “near future”. He also warned that the next step of reducing inflation would require “hard work”.
The headline inflation rate has dropped from 6.7pc in September to 4.6pc since October 2022, when the energy price cap was lowered.
Mr Bailey stated that there will be “more of this unwinding” in international energy and food price.
The Governor warned that the Bank is still working to bring prices to the 2pc target.
He said: “I’m afraid we won’t see another month when [energy] is going down by 2pc.
By the end of next year’s first quarter, after a large amount of unwinding has taken place, we might be at a little under 4pc, but there will still be 2pc left to go. The rest will be handled by monetary and policy. “At the moment, policy is acting in a way that I would call restrictive – it’s restricting the economy.”
He said that borrowers will suffer if rates remain at the current level of 5,25pc.
The Governor also said that the poorest households suffer most from inflation, and it is therefore in their interest to bring prices under control.
He said: “I am very aware of the situation of the less-well-off, but we have to get it to 2pc. That’s why I’ve pushed back against assumptions in recent times that we are talking about cutting rates or that we will be reducing interest in the near future. It’s just too early to have this discussion.”
The financial markets currently predict that the first-rate reduction, from 5,25pc down to 5pc will occur in summer 2024.
Jack Meaning, economist at Barclays, and former Bank of England employee, stated that if the increase in the National Living Wage next year slows down the decline in inflation, this could cause the first-rate cut to be pushed back further.
He said: “This would be a slowing of the rate of wage decline, not a reacceleration. But it’s likely to happen at the exact moment that the Bank begins to seriously consider rate reductions.
If all other indicators of the underlying labor market tightness and wage growth are continuing to point to a continued easing as we expect, then the MPC should continue to consider this effect.
“However, this could give a MPC member who is hawkish pause for consideration and increase the likelihood that they may want to wait past August 2024.”
In April, the National Living Wage will increase from £10.42 to £11.44 per hour. This was announced by Chancellor Jeremy Hunt last week in his Autumn Statement. The headline legal minimum will now apply to all employees over 21 years old, down from 23.
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