The Bank of England governor, Andrew Bailey, has called on businesses to hold back price rises, telling them that interest rates will need to rise again unless inflation falls.
Bailey, who was speaking after the central bank raised its base rate on Thursday to a 14-year high of 4.25% from 4%, said inflation was too high and the central bank would need to take further action unless it began to fall by the summer.
The warning came after the latest official data showed the annual rate of inflation unexpectedly rose to 10.4% in February, from 10.1% in January. The Bank of England’s official inflation target is 2%.
“We’ve got to get inflation down,” he said. “Inflation is too high at the moment. Now we think that it will fall sharply really from the early summer throughout the rest of the year. And we’re pretty confident about that.
“But it hasn’t come down yet and we had some news earlier this week which was a bit higher than we expected it to be, there were probably some temporary factors in there,” he said.
Speaking on BBC Radio 4’s Today programme, Bailey added: “I would say to people who are setting prices: please understand if we get inflation embedded interest rates will have to go up further,” he said.
“When companies set prices I understand that they have to reflect the costs that they face. But what I would say, please, 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.”
Last year, Bailey told workers to restrain wage demands or risk further interest rates rises to prevent inflation becoming embedded. His comments caused a storm of protest from trade unions who argued that wage rises were well below inflation and most workers were suffering a sharp decline in their standard of living.
The most recent labour market figures show wages growth in the private sector stalled last November and has remained flat since then.
Asked if he thought companies were profiteering, and pushing prices higher than they needed to, Bailey said he had no evidence to support this concern but wished business owners to consider price restraint.
Research on company accounts by the UK’s largest private sector union, Unite, earlier this month found that large corporations had fuelled inflation with price increases that went beyond rising costs of raw materials and wages.
Highlighting a trend dubbed “greedflation”, analysis of the top 350 companies listed on the London Stock Exchange showed that average profit margins – a company’s revenue above the cost of sales – had risen from 5.7% in the first half of 2019 to 10.7% in the first half of 2022.
Economists have become increasingly concerned that multinational corporations have passed on higher prices to increase profits and improve profit margins, pushing inflation to a level that is not warranted by increases in raw materials or wage rises.
Nestlé and Procter & Gamble are among the big global businesses to increase profits and protect profit margins over the last year.
Responding to Bailey’s remarks, the Unite general secretary, Sharon Graham, said a “lacklustre acknowledgment” by the central bank that companies had played a role in rising prices was a welcome development. But she said the governor had failed to understand “the depth of the profiteering crisis”.
“Andrew Bailey’s lacklustre acknowledgment of the role price rises are having on inflation is a step forward after years of targeting workers,” she said. “However, [he] 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%. So to claim that there is no evidence of excessive profiteering just isn’t credible. Policymakers seem determined to remain prisoners of a broken economy. They need to wake up.”
The European Central Bank recently discussed the potential impact of profiteering by companies as a source of inflation, although it has yet to disclose its conclusions.
