The Governor of the Bank of England has indicated that mortgage holders and businesses can expect further interest rate hikes as part of the bank’s efforts to reduce inflation. Andrew Bailey is expected to announce a 14th consecutive increase in borrowing costs next month, citing “unacceptably high” inflation. In his speech at the Mansion House dinner, Bailey will argue that current levels of price and wage increases are at odds with the government’s target of 2% inflation. He will also emphasize that the tightening measures implemented so far have yet to fully take effect and that the monetary policy committee is closely monitoring developments in the labor market, wage growth, and services price inflation.
The upcoming release of wage growth figures and the June cost of living data will play a crucial role in determining the future course of interest rates. Financial markets currently anticipate that rates will exceed 6% in order to bring inflation back under control.
Bailey will stress the importance of the bank’s commitment to achieving the 2% inflation target and providing a stable economic environment. He will acknowledge that the UK economy has faced external inflationary shocks, such as higher global goods prices due to supply bottlenecks caused by the pandemic and elevated energy and food prices resulting from Russia’s invasion of Ukraine. However, he will also note that headline inflation in the UK is projected to decrease significantly in the coming months, primarily driven by lower energy prices and declining commodity prices.
Furthermore, Bailey will highlight the unexpected resilience of the economy, with unemployment remaining below 4% and the country avoiding recession. Despite these positive indicators, he will emphasize that above-target inflation, coupled with tightness in the labor market and demand pressures, has led to stickier inflationary trends in goods and services prices. He will argue that current levels of price and wage increases are not in line with the inflation target.
In conclusion, Bailey’s speech will underscore the bank’s commitment to reducing inflation and fostering economic prosperity in the United Kingdom.
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