Bank of England governor Andrew Bailey has warned businesses that raising prices could lead to higher inflation, which will hurt the “least well off”.
Interest rates were lifted to 4.25% yesterday, after the Monetary Policy Committee voted seven to two for the quarter-point rise, following a surprise jump in inflation last month.
Chancellor Jeremy Hunt said he supports the bank’s decision to hike rates further as “the sooner we grip inflation the better for everyone”.
In an interview with BBC Radio 4’s Today programme, Bailey said: “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.”
He added: “If all prices try to beat inflation we will get higher inflation.”
On Thursday, Bailey said he is more optimistic that the UK can avoid a recession after being on a “knife edge” last month.
The bank gave a surprise upgrade to its forecast for the UK economy, saying it now expects slight growth in the second quarter of the year having anticipated last month it would decline by 0.4%.
It means the country would avoid imminently falling into a recession – which is defined as two consecutive quarters of negative growth.
Bailey said: “Back at the beginning of February, we were really a bit on a knife edge as to whether there would be a recession, certainly we thought the economy would be quite stagnant.
“I’m not saying it’s off to the races, let’s be clear, but I am a bit more optimistic.”
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