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Bank of England warns interest rates will rise again if businesses hike prices



The head of the Bank of England has warned businesses that raising prices will lead to interest rates being hiked again.

Interest rates were lifted to 4.25 per cent from 4 per cent on Thursday after policymakers on the Bank’s nine-strong Monetary Policy Committee (MPC) voted seven to two for the quarter-point rise following a surprise jump in inflation last month.

Chancellor Jeremy Hunt said he supports the Bank’s decision to hike rates further as “the sooner we grip inflation the better for everyone”.

In an interview with BBC Radio 4’s Today programme, the Bank’s governor said: “I would say to people who are setting prices – please understand if we get inflation embedded, interest rates will have to go up further and higher inflation really benefits nobody.

“If all prices try to beat inflation we will get higher inflation.”

Interest rates have been lifted to 4.25 per cent from 4 per cent by the Bank of England

(PA Wire)

Mr Bailey said higher inflation “really benefits nobody”, adding: “It hurts people, and it particularly hurts the least well off in society.”

On Thursday, Mr Bailey said he is more optimistic that the UK can avoid a recession after being on a “knife edge” last month.

The Bank gave a surprise upgrade to its forecast for the UK economy, saying it now expects slight growth in the second quarter of the year having anticipated last month it would decline by 0.4 per cent.

It means the country would avoid imminently falling into a recession – which is defined as two consecutive quarters of negative growth.

Mr Bailey said: “Back at the beginning of February, we were really a bit on a knife edge as to whether there would be a recession, certainly we thought the economy would be quite stagnant. I’m not saying it’s off to the races, let’s be clear, but I am a bit more optimistic.”

This comes after Tesco chairman John Allan, when asked by the BBC’s Laura Kuenssberg in January if food producers are taking advantage of the poorest in society, said it is “entirely possible”.

Mr Allan, the chairman of the UK’s biggest supermarket chain, added that the company has “fallen out with suppliers” over price rises and is trying “very hard to challenge cost increases”.



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