Andrew Bailey, the Governor of the Bank of England, refused to accept responsibility for Britain’s rampant inflation.
Threadneedle street increased interest rates at their highest level since 2008. Mr Bailey refused to apologize for the high inflation rate and promised to bring living costs under control.
Due to higher than expected food prices, the Bank expects inflation will remain above 2 pc until 2025. This is nine months later that what was previously predicted.
Officials have also acknowledged that they were wrong when they predicted in February a recession lasting a full year. Mr Bailey announced on Thursday the largest upgrade in the Bank’s historical economic growth predictions and said: “The Economy has proven to be more resilient that we expected it to.”
The policymakers increased interest rates from 4.25pc up to 4.5pc for the 12th consecutive time as Mr Bailey vowed to stay on course to cool down the economy.
When asked by journalists if high prices of food had blindsided him, the Governor replied that the pandemic in Africa and the Russian war in Ukraine was the primary cause for Britain’s inflation problem.
He said that critics of the Bank had “a degree of hindsight”, and insisted that he wasn’t blaming businesses and workers for high prices.
Mr Bailey stated: “We do not use blame language. This is something I must make clear.
“What I think we need to do is set out the underlying economic shocks in the UK and world economies that can in a way cause this situation.”
The Bank said that the stubbornly high prices of food were one reason why it will take longer to reduce inflation. According to the Consumer Price Index, the rate was 10.1pc as of March.
Gas prices dropping dramatically will have a positive impact on the economy and inflation this summer.
But policymakers said that rising food prices could undermine Rishi Sunak’s promise to halve the inflation rate by the end this year. They think the rate will be slightly above 5pc for the last quarter of the year instead of 3.9pc. There are “significant” chances that it could even be higher.
The Prime Minister has promised to half the headline rate by December, which would mean it would need to drop to around 5.3pc to meet his goal.
Mr Bailey stated: “Inflation is still too high.” Our job is to bring inflation down to 2pc and keep it there.
After initially increasing in response to Bank’s decision, the pound dropped nearly 1pc to $1.25.
After months of criticism about the Bank’s messages, Mr Bailey criticised his own chief economic adviser for saying that people “need” to accept they are poorer.
Huw Pill suggested last month that employees should stop asking for pay rises in order to prevent an overheating of the economy.
Mr Bailey stated: “I do not think Huw’s words were honest.
“I think he’d agree with you.”
The Bank attributed “almost” all of the recent increase in inflation to the rising price of groceries, especially. The Bank expects that this will continue throughout the rest of the calendar year.
The policymakers also said that the economic growth is expected to be stronger than originally thought. In fact, the economy will now expand rather than contract over the next two-year period.
The Monetary Policy Committee, which sets the rates for the economy, forecasts that it will grow by 2.25pc in three years compared to what they predicted in February. This is the largest growth upgrade in the history of the MPC.
The unemployment rate is forecast to be lower, and the wage growth to be higher than originally predicted. This year, the average salary is expected to rise by 5pc.
The upgrades in growth are in stark contrast with previous gloomy forecasts that the economy would stay smaller than it was before the pandemic until at least 2026.
Some policymakers have said that there are some preliminary signs that the job market has cooled.
The Bank said that the effects of rate increases had only been felt by a third so far. However, it is expected that higher borrowing costs will continue to slow down growth in the months ahead.
The Bank stated that many people who have a mortgage “have yet to experience higher interest rates”. The fixed-rate agreements for 1.3m homes are due to expire by the end of this calendar year. This will add an average of PS200 per month to their costs, as they switch to higher rates.
Mr Bailey warned that the recent return to 100pc mortgages may cause “quite a number of problems” and could trap borrowers into uncompetitive offers.
This week, Skipton Building Society announced that it will offer a mortgage without a deposit to first-time homebuyers who can keep up with their rental payments.
He told the BBC: “I won’t say no to 100% mortgages, but both lenders as well as borrowers must be very cautious about this.”
If house prices fall, borrowers with no deposit may be forced to live in a home that is worth less than the mortgage.
Mr Bailey stated: “You may have quite a number of problems.” Many people are stuck in mortgages that they cannot get out of for long periods of time.