Interest rates will have to rise further if companies keep putting up prices, warns Bailey
Andrew Bailey has warned businesses against trying to “beat inflation” with large price rises, warning that interest rates may be forced higher if they do.
The Governor of the Bank of England said companies risked fuelling inflation by continuing to increase prices.
Mr Bailey warned companies that interest rates may need to be raised further if “all prices try to beat inflation”.
The Bank of England raised interest rates for the 11th time in a row on Thursday after inflation unexpectedly increased to 10.4pc in February.
Mr Bailey said he had not seen evidence of companies putting up prices more than necessary but warned that policymakers would need to raise rates if inflation looked likely to become “embedded”.
Mr Bailey told BBC Radio 4's Today programme: “When companies set prices I understand they have to reflect the costs that they face.
“But when they are setting prices in the economy we do expect inflation to come down this year and I would say please bear that in mind.”
He added: “I would say to people who are setting prices: please understand if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody.
“It hurts people, and it particularly hurts the least well-off in society.”
Inflation remains five times higher than the Bank's target of 2pc.
Mr Bailey said there is a “pretty strong likelihood” the UK will avoid a recession this year.
He said: “The risk has gone down quite a lot. You can't rule out a risk.
“The prospects for the economy in terms of growth are now better, considerably better.
“There's a pretty strong likelihood that we will avoid a recession this year.
“But we have still got to put in place the conditions for much stronger growth in the economy and sustainable growth in the economy.”