Bank of England Governor Andrew Bailey acknowledged for the first time that the bank is dealing with a spiral of rising prices and wages in the United Kingdom, in light of the bank’s pledge to raise interest rates “as necessary” to bring inflation back to the bank’s 2% target, according to Sky News.
Speaking to the annual conference of the British Chambers of Commerce in London, the BoE governor said the UK was suffering from the effects of a “second round” of inflation, highlighting the pervasiveness of rapid price increases from energy and food, to public wages and prices. “Some of the strength in core inflation reflects the spillover effects of higher energy prices,” Bailey said.
“But it also reflects the effects of the second round of inflation, where the external shocks that we have seen interact with the conditions of the domestic economy. And with the decline in core inflation, it is unlikely that these effects will disappear in the second round as quickly as they appeared.”
The Bank of England has repeatedly stated over the past 18 months that it is trying to stem the risks of rising energy and food costs affecting domestic wages and prices, but the Bank has now admitted that it has failed in that task.
One of the good news in the economy, the governor said, is that wage growth has eased slightly, and that “near-term indications are that wage growth may ease further later this year.”
But the Monetary Policy Committee of the Bank of England was looking for more progress in the results of its decisions, before it was convinced that it had restored price stability to the British economy.
Bailey said: “Inflation expectations are more ambiguous and depend on the extent of stability in determining wages and prices,” adding that “the committee will continue to closely monitor indicators of stability in inflationary pressures.”
“I can assure you that the MPC will adjust the interest rate as necessary, to bring inflation back to a sustainable target over the medium term, in line with its mandate,” Bailey said.
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