Bank of England Governor Andrew Bailey said the bank’s decision to raise interest rates by 50 basis points in June was “reasonable”.
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Bank of England Governor Andrew Bailey said on Wednesday that the bank’s surprise decision to raise interest rates by 50 basis points last week was “reasonable.”
The move defied market expectations for a 25 basis point hike and reignited debate among critics who argued the central bank had failed to act quickly and decisively enough to address rising costs.
Bailey said he accepted the criticism but insisted that the MPC remains committed to its mandate: getting inflation back to 2%.
“We had to do something very strong at the time. It was justified,” Bailey told CNBC’s Sara Eisen at the ECB’s annual meeting in Sintra, Portugal.
“I can understand why some people criticize us and the central bank,” he added.
“We have a job to do. Our job is to get inflation back on target and we will do what is necessary. I understand the concerns that come with it, but I’m afraid I always say that if we don’t it will be worse There is no way to bring inflation back to target.”
Last week, fresh data showed that UK annual consumer price inflation topped expectations at 8.7% in May, adding to pressure on the central bank, which has been trying to bring inflation down at the same pace as some of its international peers.
Crucially, 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 the highest since March 1992.
Bailey said the bank’s main objective was to reduce core inflation, which had proved to be “stickier”, partly because of the strength of the UK labor market. This robustness also allowed the bank to reverse its previous forecast that the UK would enter its longest recession on record.
“We’re in a more resilient position this year than I expected,” he said.
The governor will not be pressed when inflation is likely to return to target, insisting the central bank’s next rate decision – due in August – will be “evidence-based”.
Bailey spoke to a panel along with other central bankers from the Federal Reserve, the European Central Bank and the Bank of Japan.
Federal Reserve Chairman Jerome Powell said he expects further rate hikes ahead, and likely at an aggressive pace.