A senior official at the Bank of England has said “tough times” in the UK economy are likely for some time, and interest rates will probably increase again as the Bank tries to bring down inflation.
The Bank’s deputy governor Sir Dave Ramsden was speaking on a visit to Newcastle where he met with a number of local businesses to gauge the health of the regional economy. He said he had seen greater economic “dynamism” in Newcastle city centre than he was currently noticing in central London, but admitted that inflationary pressures were proving difficult for both businesses and individuals.
It was the Bank’s priority to bring inflation back towards its 2% target, but that was likely to take another two years, he said.
Read more: concerns despite North East economy returning to growth
Sir Dave was speaking after inflation hit a 40-year high of 9.1% last month, with expectations that it could top 11% by the end of the year. Rising food and fuel costs are among the big drivers of the rising inflation, putting huge pressure on many families and companies as costs rise.
He said: “We understand how tough times are for everyone in the UK, particularly those on low incomes, given the nature of the inflation that we’ve got and how it’s being driven by necessities, such as food and fuel. When we look at our forecasts, they show inflation peaking towards the end of this year at around 11%. That does mean times are going to continue to be really tough.
“As we get into next year, inflation will start to fall back and we’ll have to see what happens to the level of prices and the level of costs. But the key thing for us is to get inflation back to the 2% target, but sustainably.”
Sir Dave, a member of the Bank of England’s interest rate-setting Monetary Policy Committee, said inflation was a “global phenomemon” that had been driven by an “extraordinary period” of shocks that included the pandemic and the war in Ukraine. He said interest rates, which have risen for the last five months, are “very likely to have to go up further”, though he stressed they were still at historically low levels.
He added: “We will have to respond to whatever happens but we want people to understand that we’re not going to let high inflation to become sustained and get out of control like it did in the ‘70s and ‘80s. We will take the necessary steps to get back to 2%. It will take time to get back to 2% - on our latest forecast we get to 2.3% in two years’ time. That’s the destination that it’s important that businesses and the workforce have in mind. Inflation is going to up from here but then it’s going to come down.”
Sir Dave said meetings he had had with businesses in the North East and a major new office block being built on the site of the Bank of England’s former Newcastle offices, showed positives in the region’s economy.
He said: “One of the things I’ve been struck by on my day in Newcastle is that, yes, people are having to deal with the cost of living crisis, firms are having to deal with it and inflation is very high. But companies are still investing and there seems to be a lot of dynamism with new buildings going up. There’s quite a lot of economic activity and investment taking place.”
READ NEXT:
* Barratt boss hails strength of regional economy
