Andrew Bailey: Interest rates will need to stay high for some time
The increase in inflation we have seen over the past two years has been a huge shock to families and businesses across the country. The rises in food and energy prices in particular, have hit the least well off the hardest. But everyone has been affected. It’s our job at the Bank of England to get inflation back to the 2% target.
On that front, there's some good news. Inflation has fallen significantly and we expect it to fall significantly further, probably to below 5%, when the data for October are published in a couple of weeks. Our previous increases in interest rates are working to bring inflation down.
Today, we decided to keep interest rates on hold at 5.25%. That’s the second meeting in a row in which we’ve decided not to change rates after 14 back-to-back rate rises in the meetings before that.
Many people will be relieved that rates haven’t gone up again this month. Some will be asking when it might come time to start lowering rates again. I can understand that. But there is absolutely no room for complacency on inflation.
We need to see it fall all the way back to our 2% target. It’s been moving in the right direction, but there’s still a long way to go. At the Bank, we’ll be watching closely to see if further increases in interest rates are going to be needed. And, even if they’re not, rates will need to stay high for some time to make sure that inflation continues to fall.
Many people will be relieved that rates haven’t gone up again this month. Some will be asking when it might come time to start lowering rates again. I can understand that. But there is absolutely no room for complacency on inflation.
Our economy has faced some huge economic challenges over the past few years: the pandemic, the enormous increases in energy and food prices caused by Russia’s war against Ukraine. It has proved remarkably resilient so far, but there are now some signs that the economy has started to grow more slowly. That’s to be expected, given the economic shocks that have hit us.
Our latest forecasts have subdued economic growth for much of the next two years, but we do not expect a sustained recession. Monetary policy is restrictive to return inflation to the 2% target. Low and stable inflation is the foundation of a healthy economy. The Bank of England will do whatever is necessary to achieve that, so that our economy can grow and prosper once more.
