Andrew Bailey acknowledged the Bank of England was dealing with a UK wage spiral. He pledged to increase interest rates “as far as necessary” to bring inflation back to its 2 percent target.
The BoE Governor, speaking at the British Chambers of Commerce Annual Conference in London, said that the UK is experiencing “second round” effects of . He highlighted the spread of rapid prices increases from energy and foods to generalised wage and pricing by companies.
Bailey explained that some of the increase in core inflation is due to indirect effects from higher energy prices.
It also reflects a second-round effect as external shocks interact with the current state of the economy. These second-round effects will not disappear as quickly as the headline inflation drops.
The BoE repeatedly stated that it would try to prevent the impact of high food and energy costs on domestic wages and prices throughout 2022 and this year. Now it has admitted that this task was not accomplished.
The governor noted that the wage growth has slowed slightly. “Near-term indicators indicate that pay growth may ease further in later years”, he said.
The BoE’s Monetary Policy Committee is still waiting for more progress before they are convinced that the UK economy has returned to price stability.
Bailey added that the committee would continue to closely monitor the indicators of inflationary pressures.
Bailey stated: “I can assure that the MPC, in accordance with its mandate, will adjust the Bank Rate to the necessary level to sustainably return inflation to the target in the medium-term.”
Jeremy Hunt, the chancellor at the conference, said that “nothing is automatic” when it comes to bringing down inflation.
Hunt has refused to criticise BoE’s fight against inflation after it was revealed last week that it believed there was a close to 50:50 chance of it missing Rishi Sunak’s target to reduce inflation by half this year.
He said, “The Bank of England plays a role in monetary policy and interest rate setting. We support them 100 percent.”
Hunt also intervened in the Conservative Party squabble over immigration, calling on the UK to take a pragmatic approach on the matter. “If you take a look at the changes that have occurred since the Brexit vote and since we left our single market, it is clear that the government has taken a pragmatic approach to immigration,” said Hunt.
Shevaun Hailian, the director-general of the BCC, sought to portray the organization as a “champion for every business” at the same conference that Bailey addressed, having pulled out from the CBI’s counterpart before it was cancelled.
She didn’t mention the CBI – the business lobby group whose operations were suspended after a scandal involving misconduct – but she said that business needed a “fresh relation with the government”. Haviland said that with a general elections less than 18-months away, we are at a crucial moment for the voice and business of Britain.