Bank of England governor Andrew Bailey yesterday signalled further interest rate hikes were not ‘inevitable’ – but warned the ‘experience of the 1970s’ means it must not be complacent.
Bailey said ‘nothing is decided’ about whether rates, which have been rising rapidly in response to soaring inflation, would need to go up again.
At the next rate-setting meeting in three weeks, officials will have to decide whether or not to hike further after hitting 4 per cent last month. Inflation is above 10 per cent but is forecast to come down rapidly this year.
Unsure: Andrew Bailey (pictured) said ‘nothing is decided’ about whether rates, which have been rising rapidly in response to soaring inflation, would need to go up again
The Bank’s rate-setting Monetary Policy Committee is split over whether a further rise is needed to guard against a renewed inflation squeeze.
Bailey told a cost of living conference in London there was ‘no easy way out’, acknowledging the pain that higher rates was causing to borrowers but stressing that the surge in prices meant people on lower incomes were ‘struggling to make ends meet’.
He added: ‘I would caution against suggesting either that we are done with increasing Bank rate, or that we will inevitably need to do more.
‘Some further increase in Bank rate may turn out to be appropriate, but nothing is decided.’
The language suggested that the Bank ‘would like to call time on its hiking cycle as soon as it feasibly can’ said Samuel Tombs, chief UK economist at Pantheon Macroeconomics.
Yet Bailey also added a big caveat about the mistakes of half a century ago when central banks seemed to give up the fight against inflation.
‘If we do too little with interest rates now, we will only have to do more later on,’ he said. ‘The experience of the 1970s taught us that important lesson.’
The speech came as figures showed the impact of higher borrowing costs as well as the cost of living squeeze. House prices fell 1.1 per cent in February compared with a year earlier according to lender Nationwide.
Data from the Bank of England showed 39,600 mortgages were approved for house purchase in January, down from 40,500 in December and the lowest since May 2020.
And Britain’s manufacturing sector provided a positive sign – after a business survey suggested a prolonged downturn was drawing to a close amid stronger demand and reduced supply chain disruption.
Signs that inflation is easing and that an expected economic downturn may not be as bad as feared have buoyed financial markets. Yet figures yesterday from Germany, showed inflation crept higher to 9.3 per cent last month, up from 9.2 per cent in January.
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