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Bank of England prepared to raise interest rates again, says Bailey

Governor of the Bank of England Andrew Bailey addresses the media on the Monetary Policy Report at the Bank of England in London, Britain May 5, 2022. Frank Augstein/Pool via REUTERS
Andrew Bailey said the Bank of England is 'prepared' to 'take the actions needed to return inflation to target. Photo: Frank Augstein/Pool via Reuters (POOL New / reuters)

Andrew Bailey has hinted again that the Bank of England could hike interest rates further to help combat runaway inflation.

Speaking at Oesterreichische Nationalbank's Annual Economic Conference in Vienna on Monday, the BoE's governor said: “We have raised the official rate four times so far and have made clear that in order to bring inflation down to target we are prepared to do so again based on the assessment at each of our meetings.”

Bailey also warned that the cost of living crisis was hurting demand and that policy makers would take that into account when deciding how much to raise interest rates.


Read more: Bank of England chief economist supports further interest rates hikes

He said: "In the UK we are facing a very big negative impact on real incomes caused by the rise in prices of things we import, notably energy.

"We expect that to weigh heavily on demand. We judge the appropriate degree of monetary tightening taking that into account."

The Monetary Policy Committee recently voted to increase interest rates by 0.25%, to 1.0% - its fourth rise in a row from a historic low of 0.10% in March 2020.

The governor defended the Bank of England amid claims it stoked inflation by letting demand get out of hand in response to the pandemic.

UK inflation jumped to 9% in the 12 months to April, up from 7% in March and the highest level it has reached since 1982.
UK inflation jumped to 9% in the 12 months to April, up from 7% in March and the highest level it has reached since 1982.

“What I reject is the argument that in our response to COVID the Bank’s Monetary Policy Committee let demand get out of hand and thus stoked inflation.

Read more: Is the UK heading into a recession?

"The facts simply do not support this. On the latest number, UK GDP in March was only 0.6% above its pre-Covid level, and it is substantially below the path it was expected to follow pre-COVID."

Last week Mervyn King, who was the Bank’s governor in 2008 when financial markets crashed, had said the BoE’s actions during the pandemic helped push inflation to 40-year highs.

Bailey said that the job of monetary policymakers was not to “anticipate and stop the effects on inflation of shocks” such as the invasion of Ukraine or COVID-19, but to respond when they happen.

Watch: How does inflation affect interest rates?