Governor Andrew Bailey has warned that the Bank of England will continue to increase interest rates if they are signs that inflation is remaining persistent.
Bailey said he was “unwavering” in his commitment to the UK’s 2% inflation target, as he warned that higher food prices and a tight labour market could cause the cost of living crunch to persist.
“The MPC (Monetary Policy Committee) is continuing to address the risk of more persistent strength in domestic price and wage setting, as represented by the upward skew in the projected distribution for CPI inflation, and the committee will continue to monitor closely the indicators of persistence in inflationary pressures,” he told bosses at the British Chamber of Commerce (BCC) conference.
“I can assure you that the MPC will adjust Bank Rate as necessary to return inflation to target sustainably in the medium term, in line with its remit.
“If there were to be evidence of more persistent pressures, then further tightening in monetary policy would be required.
“Our commitment to the 2% inflation target is unwavering.”
The BoE last week raised interest rates for the 12th time in a row, taking Bank Rate to 4.5%, and investors on Wednesday were pricing a roughly two-in-three chance of a further 25 basis-point increase at the central bank's June meeting.
Bailey said there were some signs of a cooling of inflation pressure in Britain's labour market but it was too soon to say the risks posed by the shortage of workers was over.
"There are signs that the labour market is loosening a little," Bailey said, citing an increase in the numbers of people seeking work and a drop in vacancies in data published on Tuesday.
He added there were signs that pay growth could ease further later this year.
"But the easing of labour market tightness is happening at a slower pace than we expected in February, and the labour market remains very tight," Bailey noted.
Bailey told the BCC’s annual global conference that inflation is “much too high”, with the central bank hiking interest rates over the past year in an effort to grapple soaring costs.
He said: “Inflation has come in higher than expected, with higher food prices accounting for much of this.
“We do, however, have good reasons to expect inflation to fall sharply over the coming months, beginning with the April number to be released next Wednesday.
“Energy prices have fallen from their peaks, and that will now start to come through as lower inflation.”
He, however, rejected blame for double-digit inflation, which is more than five times the Bank's target.
"The headline is that even if we had had the benefit of full hindsight in the run-up to the war in Ukraine, and ample advanced warning – which for the record we did not, no one did – then in order to keep inflation at around 2%, we would have had to raise Bank Rate well into double digits, sending unemployment much higher than it is today, and we would have had to do so in the middle of the worst pandemic in more than a century.
"Monetary policy can't make the impact on real incomes go away I'm afraid."
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