Bank of England pledges to cut inflation to 2% | bank of england

The Bank of England will “bring inflation back to its 2% target,” its chief economist has promised, despite challenges it faces from rising food and energy costs and a decline in the value of the pound making both more expensive become.

Huw Pill said he wanted to make it clear to the public that the central bank’s sole aim at this point was to slow the pace of price growth, in a clear hint that more rate hikes are on the way.

His comments follow an equally sharp warning from Sir Jon Cunliffe, a deputy governor of the Bank, who said the Monetary Policy Committee (MPC) would “do everything” to prevent the skyrocketing cost of living from becoming a lasting inflation problem.

Pill said he was monitoring companies to see how much they passed on to consumers wage increases and higher costs of raw materials and components, driving prices further.

UK headline inflation rose to a 40-year high of 9.1% in May, but the Bank expects it to rise further to 11% in the autumn.

The Bank’s inflation target is 2% and in response to rising prices, it has raised interest rates five times since December.

Pill said: “I see my role as an MPC member as ‘in the price stability business’. This means that inflation will be brought back to the target of 2% in a sustainable manner. If there’s one message that distracts a wider audience from my comments this morning, I hope it’s it.”

Cunliffe urged the central bank to act “forcefully” to ensure that higher inflation due to domestic pressures and rising prices of imported energy and food does not become “the new normal” for the UK economy.

“Our job is to make sure that when this inflation shock goes through the economy, we don’t notice inflation becoming the new normal, the kind of embedded psychology,” he told BBC Radio 4’s Today programme.

He added that the Bank’s rate-setting MPC would take steps to address rising inflation. “People can trust that we will act to make sure that doesn’t happen,” he said.

Cunliffe argued on Tuesday that UK households would be able to handle interest rates of up to 5% without defaulting on their debt.

He made the claim when the Bank released its latest financial stability report, which said most UK consumers and businesses entered the current financial crisis with relatively low debt levels, although it expects them to become more tense in the coming months as weaker growth and bite higher prices.

In his BBC interview on Wednesday, the bank’s deputy governor said that rising inflation was already changing consumer behaviour. Cunliffe added that a slowdown in spending was already impacting the economy in general.

“What we expect is that the cost of living will actually push people’s spending and that will start to cool the economy, and we can see signs that the economy is already slowing,” he said.

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The Bank was criticized for being too slow to raise rates when prices first started to rise.

“Over the past five meetings, we have increased the rates at each meeting. I don’t think that’s ever happened in MPC history,” Cunliffe said.

The Bank raised its key key rate by 0.25 percentage point to 1.25% in mid-June, and some economists have forecast the central bank could raise rates by as much as 3% by the end of 2023.

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