The Bank of England is edging closer towards an interest rate hike despite the UK’s economic recovery ‘flattening’, Andrew Bailey told MPs.
The central bank governor said that all of the Bank’s rate-setting Monetary Policy Committee agreed last month that now was not the right time to hike interest rates.
But half of the panel were convinced the minimum conditions for a hike have been met, meaning a rise is drawing closer, he told the House of Commons Treasury Committee.
Bank of England governor Andrew Bailey (pictured) said all of the central bank’s rate-setting Monetary Policy Committee agreed that now was not the right time to hike interest rates
This was despite concerns that the UK’s rebound from last year’s slump is slowing.
Bailey said: ‘At the moment, we’re seeing some levelling off of the recovery. The short-term indicators are suggesting that.’
Referencing payments data and figures on how many people were getting out and about, Bailey added that there was ‘some flattening out of the rate of recovery’.
He added that shortages of staff, concerns about rising Covid rates, and supply chain bottlenecks were all holding back economic activity.
He was among the four members of the MPC last month who believe the Bank could be justified in raising interest rates from their record low of 0.1 per cent.
He said it would be ‘reasonable’ to expect a hike over the coming years. The Bank slashed rates last year to encourage spending, as economic activity fell off a cliff during lockdown.
It said it would not consider raising rates again until there was ‘clear evidence that significant progress was being made’ in getting jobless workers back into employment, and achieving its 2 per cent inflation target.
But Silvana Tenreyro, a member of the MPC, said she did not believe the conditions had been met as there were still many workers who were unemployed, had decided to stop looking for jobs, or were still furloughed.
Bailey was cautious around inflation, or rises in the cost of living, which the Bank is predicting to hit 4 per cent this year.
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