UK is suffering harsher downturn than other countries… and it could last longer too, Bank of England boss warns
- Britain is suffering a sharper economic slowdown than other rich countries
- Inflation set to last longer than elsewhere, Bank of England governor warns
- Andrew Bailey said economy at ‘turning point’ following its post-Covid recovery
Britain is suffering a sharper economic slowdown than other rich countries and inflation looks set to last longer than elsewhere, the governor of the Bank of England has warned.
In a bleak assessment, Andrew Bailey said the economy was at a ‘turning point’ following its post-Covid recovery as it is battered by a ‘very large national real income shock’.
And he said the Bank stood ready to hike interest rates more aggressively as it battles to get inflation under control.
The Bank is tasked with keeping inflation at 2 per cent but prices are now 9.1 per cent higher than a year ago – the biggest increase for 40 years.
Bank of England governor Andrew Bailey said the economy was at a ‘turning point’ following its post-Covid recovery as it is battered by a ‘very large national real income shock’
The central bank’s own forecasts suggest inflation will hit 11 per cent before the end of the year as the energy price cap rises again and the cost of other goods from food to fuel soar. The surge in the cost of living – which threatens to tip the economy into recession – has raised questions over the Bank’s handling of the economy under Mr Bailey.
Speaking alongside leading central bankers in Portugal yesterday, he said: ‘I think the economy is probably weakening rather earlier and somewhat more than others.’
He went on: ‘We are being hit by a very large national real income shock, which is coming from outside. The scale of the shock is very substantial… because it will reduce domestic demand and it will pass through into the labour market and it will pass through into inflation.
‘When I look at the UK economy at the moment, it’s very clear that the economy is now starting to slow. We are at something of a turning point in that respect.’
Mr Bailey also warned a further increase in the energy price cap in October – following the hike in April – would push inflation even higher.
The Bank is tasked with keeping inflation at 2 per cent but prices are now 9.1 per cent higher than a year ago – the biggest increase for 40 years (file image)
The Bank has been criticised for acting too slowly to curb inflation. It has raised rates five times since December from 0.1 per cent to 1.25 per cent, but never by more than 0.25 percentage points at a time.
By contrast, the US Federal Reserve has raised rates three times since March, by 0.25, 0.5 and 0.75 percentage points.
Mr Bailey said the Bank has ‘the option’ to act more forcefully – implying a rise of 0.5 percentage points could be on the cards as soon as the next meeting of the rate-setting monetary policy committee in early August.
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