UK Prime Minister Rishi Sunak has expressed his unwavering support for the Bank of England and its Governor Andrew Bailey, who has come under fire for the country’s high inflation rates. Sunak had previously promised to halve inflation by the end of the year, but as of May, headline consumer price inflation remains at 8.7% and core inflation has reached its highest rate in 31 years. Furthermore, annual average wage growth has accelerated to its fastest rate on record, while economic growth has stagnated and public debt has exceeded 100% of GDP. The Bank of England has responded by increasing interest rates, resulting in concerns about a potential mortgage crisis. Economists argue that the UK is facing both a labor market shock and an energy shock, with the nation being hit harder by the latter than mainland Europe. The Bank of England’s handling of the situation has raised questions about its credibility and effectiveness. Experts suggest that the UK’s susceptibility to inflation is reminiscent of past economic stagnation periods, and the central bank’s communication and forecasting mechanisms have been criticized. The Bank is currently reviewing its inflation forecasting methods, but still expects inflation to decrease rapidly, albeit at a slower pace.
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