The governor of the Bank of England has warned again that interest rates will not be cut in the “foreseeable future”, saying it is “too soon to have that discussion”.
Andrew Bailey said getting inflation, which is the rate consumer prices rise at, down to the Bank’s 2% target would be “hard work”.
Inflation has dropped sharply in recent months, falling to 4.6% in the year to October.
But Mr Bailey said getting inflation back down to the Bank’s target was why he had “pushed back of late against assumptions that we’re talking about cutting interest rates”.
Mr Bailey also said he was concerned about the UK economy. “If you look at what I call the potential growth rates of the economy, there’s no doubt it’s lower than it has been in much of my working life,” he added.
His comments, in an interview with local news website Chronicle Live, external during a visit to the North East of England, come as a House of Lords committee report said that reforms were needed to improve the Bank of England’s performance and accountability.
The Bank, which sets UK interest rates, has raised rates in recent times in its attempt to tackle rising prices, which have soared largely due to energy and food costs increasing in the aftermath of the Covid pandemic and Russia’s invasion of Ukraine.
Interest rates are currently at 5.25%, a 15-year high, which has pushed up mortgage costs but also led to higher savings rates.
Despite inflation falling recently due to lower wholesale energy prices, Mr Bailey has repeatedly warned against suggestions that interest rate cuts will follow.
“I’m very conscious of the position of the less well-off,” he told Chronicle Live.
“But we do have to get [inflation] down to 2% and that’s why I have pushed back of late against assumptions that we’re talking about cutting interest rates.”
The Bank first started to raise rates in December 2021 in an attempt to control inflation – but it is a balancing act. If rates go up too fast, consumers and businesses may spend and invest less which tends to drag on the economy.
The UK is not currently in recession but there have been concerns over weak economic growth.
In his Autumn Statement last week, Chancellor Jeremy Hunt announced some tax cuts for workers and businesses as the government attempts to boost growth, but the UK’s overall tax burden is still on course to hit a record high.
A report by the House of Lords Economic Affairs Committee released on Monday said the framework for the Banks’ independence had been tested by the rise in inflation and “the resulting loss of public confidence in the Bank”.
It said “all central banks, including the Bank of England” had made errors in recent years, including forecasting inflation incorrectly.
“While we are of the strong view that independence should be preserved, reforms are needed to improve the Bank’s performance and to strengthen its accountability to Parliament,” said Lord Bridges of Headley, chair of the committee.
The report said that a “democratic deficit” had emerged with “critically important” economic decisions being “delegated to unelected officials”.
It suggested the Bank’s remit be “pruned”, in order to “ensure that the Bank is focused on its primary objectives of tackling inflation and ensuring financial stability”.
“The Bank must do more to foster a diversity of views and strengthen a culture that encourages challenge,” the report added.
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