The governor of the Bank of England has raised concerns over economic growth as he warned again that interest rates will not be cut in the “foreseeable future”.
Andrew Bailey said he was concerned over the UK economy’s potential to grow, adding “there’s no doubt it’s lower than it has been in much of my working life”.
It comes after the government’s forecaster slashed its growth outlook for the UK, in part due to high inflation and interest rates.
Inflation, which is the rate consumer prices rise at, has dropped sharply in recent months, falling to 4.6% in the year to October largely as a result of lower energy prices.
However, it is still more than double the Bank of England’s 2% target and Mr Bailey warned lowering inflation further would be “hard work”.
His comments, in an interview with local news website Chronicle Live, external during a visit to the North East of England, came as a House of Lords committee report said that reforms were needed to improve the Bank of England’s performance and accountability.
The Bank has raised interest rates in recent times in its attempt to tackle rising prices, which have soared largely due to energy and food costs increasing in the aftermath of the Covid pandemic and Russia’s invasion of Ukraine.
Interest rates are currently at 5.25%, a 15-year high, which has pushed up mortgage costs but also led to higher savings rates.
Despite a recent fall in the inflation rate Mr Bailey has repeatedly warned against suggestions that interest rate cuts will follow.
“I’m very conscious of the position of the less well-off,” he told Chronicle Live.
“But we do have to get [inflation] down to 2% and that’s why I have pushed back of late against assumptions that we’re talking about cutting interest rates.”
The Bank first started to raise rates in December 2021 in an attempt to control inflation – but it is a balancing act. If rates go up too fast, consumers and businesses may spend and invest less which tends to drag on the economy.
The UK is not currently in recession but there have been concerns over weak economic growth.
In his Autumn Statement last week, Chancellor Jeremy Hunt announced some tax cuts for workers and businesses as the government attempted to boost growth, but the UK’s overall tax burden is still on course to hit a record high.
Mr Bailey said the slowing down of the economy’s productivity “does concern me a lot”.
“If you look at what I call the potential growth rates of the economy, there’s no doubt it’s lower than it has been in much of my working life,” he said.
Last week, the independent Office for Budget Responsibility (OBR) said that while it expected the UK economy to grow by 0.6% this year, the outlook for the next couple of years was not as good as previously predicted.
It cut its growth outlook to 0.7% in 2024 and 1.4% in 2025 – down from previous forecasts of 1.8% and 2.5%.
Meanwhile, a report by the House of Lords Economic Affairs Committee released on Monday said the framework for the Bank’s independence had been tested by the rise in inflation and “the resulting loss of public confidence in the Bank”.
It said “all central banks, including the Bank of England” had made errors in recent years, including forecasting inflation incorrectly.
“While we are of the strong view that independence should be preserved, reforms are needed to improve the Bank’s performance and to strengthen its accountability to Parliament,” said Lord Bridges of Headley, chair of the committee.
The report said that a “democratic deficit” had emerged with “critically important” economic decisions being “delegated to unelected officials”.
It suggested the Bank’s remit be “pruned”, in order to “ensure that the Bank is focused on its primary objectives of tackling inflation and ensuring financial stability”.
“The Bank must do more to foster a diversity of views and strengthen a culture that encourages challenge,” the report added.
