Bank of England Governor Andrew Bailey said that the bank was “justified” in its decision to raise interest rates by a surprise 50 basis points in June.
Bloomberg | Getty Images
Bank of England Governor Andrew Bailey said Wednesday that the bank was “justified” in its decision to raise interest rates by a surprise 50 basis points last week.
The move defied market expectations of a 25 basis point hike and reignited debate among critics who say that the central bank has failed to act quickly and decisively enough to tackle rising costs.
Bailey said he accepted the criticism, but insisted that the Monetary Policy Committee remains committed to its task: to return inflation to 2%.
“We had to make really quite a strong move at that point. It was justified,” Bailey told CNBC’s Sara Eisen at the European Central Bank‘s annual conference in Sintra, Portugal.
“I can understand why there are critics of us and central banks,” he added.
“We have a job to do. Our job is to return inflation to target and we will do what is necessary. I understand the concerns that go with that, but I’m afraid I always say that it is a worse outcome if we don’t get inflation back to target.”
Fresh data last week showed annual U.K. consumer price inflation was 8.7% in May, exceeding expectations and adding to pressure on the bank, which has struggled to bring down inflation at the same pace as some international peers.
Critically, core inflation — which excludes volatile energy, food, alcohol and tobacco prices — was 7.1% year on year in May, up from 6.8% in April and marking its highest rate since March 1992.
Bailey said the bank’s main objective was to lower core inflation, which had proven “much stickier” in part due to the strength of the U.K. labor market. That robustness also saw the bank reverse its earlier prediction that Britain was on course to enter its longest recession on record.
“We’re going through this year in a more resilient position than I expected,” he said.
The governor would not be pressed on when inflation might return to target, and insisted that the bank’s next rate decision — due in August — would be “evidence driven.”
Bailey was speaking on a panel alongside fellow central bank chiefs from the U.S. Federal Reserve, European Central Bank and the Bank of Japan.
Fed Chair Jerome Powell said that he anticipated further interest rate hikes ahead, potentially at an aggressive pace.
