The rate of inflation remains on track to fall rapidly from the spring although there remains a risk of the UK’s tight labour market creating more inflationary pressures forcing the bank to intervene by rising interest rates, the Governor of the Bank of England has said.
On an official visit to South Wales, his last before the Bank’s Monetary Policy Committee makes its February decision on the base rate (currently 3.5%), Andrew Bailey said the central bank still believes the UK economy will enter into a recession which, although shallow, will be contracted.
He was not able to comment on where the bank sees interest rates peaking - with rate rises being its key weapon in reducing inflation and getting it back to its 2% target. But he noted that since taking the unusual step last November to comment that the market view on interest rates getting to a peak of 6% was too high, the bank hasn’t since made a similar intervention. The current market thinking on interest rates is that they could peak at around 4.5%.
