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BoE governor Bailey issues businesses with base rate rise warning
A day after the Bank of England (BoE) raised the base rate to 4.25%, the highest in more than a decade, the Governor Andrew Bailey has issued a plea asking businesses to hold the line on prices.
In an interview on BBC Radio 4’s Today programme, Bailey said: “If all prices try to beat inflation, we will get higher inflation.”
He also warned that if companies kept raising prices, the central bank would need to raise its rates again as a way to encourage people to spend less by making borrowing more expensive. Higher interest rates, for example, can mean sharply higher payments for people with mortgages and big jumps in rental fees.
His comments followed an unexpected leap in inflation last month.
“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,” he said. “It hurts people and it particularly hurts the less well-off.”
Inflation could fall
Bailey said companies should remember that “[the BoE] thinks that inflation will fall sharply from the early summer throughout the rest of the year. We’re pretty confident about that, but it hasn’t come down yet.”
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“We’ve got to get it back to the 2% target,” he said.
He said that he understood how prices need to reflect the cost that companies face, “but what I would say is that when we are setting prices in the economy and people are looking forwards, we do expect inflation to come down sharply this year and I would just say please bear that in mind.”
Unions respond to Bailey’s comments
Bailey also said he had seen no evidence that companies were taking advantage by pushing prices higher than necessary.
Sharon Graham, general secretary of Unite, the biggest union in Britain’s private sector, responded to the interview, saying that Bailey’s “lacklustre acknowledgement of the role price rises are having on inflation is a step forward after years of targeting workers.
She said: “However, the Governor of the Bank of England is still refusing to acknowledge the depth of the crisis. The UK is in the grip of a profiteering epidemic – it is greedflation, not workers’ wages, that is fuelling the cost-of-living crisis. The profits of Britain’s biggest firms have spiked 89%: to claim that there is no evidence of excessive profiteering just isn’t credible.”
£100 steak, £20 pint
Martin Williams, chief executive of Rare Restaurants, told the BBC that businesses had already held back on price rises: “If restaurants had reflected the increased ‘costs they face’ in the past year as Mr Bailey suggests, a simple side salad would be priced at £20, a pint of beer would be £20 and a steak would be £100.”
Business owners, he said, were trying to balance prices with survival of their businesses amid increases in their own costs for supplies, energy and wages.