Bank governor warns against raising prices

Bank of England Governor, Andrew Bailey, has warned that raising prices would increase the cost of living and disproportionately affect the least well-off. Speaking to the BBC’s Today programme, he cautioned against a situation where all prices try to beat inflation, leading to higher inflation, which he said “hurts people.” Bailey added that if prices continued to rise, the Bank would have to raise interest rates again. The warning comes after the Bank raised interest rates to their highest level in 14 years, following unexpected price jumps last month.

Soaring inflation in the UK and around the world has been affecting households’ finances as food and energy prices rise. The least well-off are hit hardest by cost of living pressures as they spend a larger proportion of their income on basic necessities. To address rising prices, the Bank has been steadily increasing interest rates to make borrowing money more expensive and encourage people to spend less.

However, higher interest rates also affect people with existing loans such as mortgages. Responding to Bailey’s warning, Martin Williams, chief executive of Rare Restaurants, said that businesses had already been restrained in raising prices. Williams argued that if restaurants had reflected the increased costs they face, a side salad would cost £20, beer would be £20 per pint, and a small steak would cost £100. Williams added that restaurant owners had responsibly tried to balance keeping pricing low and keeping their businesses viable while facing surging wage, food, and energy bill costs.

The UK government spokesperson said it has provided an “unprecedented” energy support package for firms and “further support from April onwards.” The support comes at a time when energy bills for firms such as pubs, restaurants, and hotels will become less generous, leading to an 82% rise in bills, according to UK Hospitality.

In the same interview, Bailey also said that he believed the UK banking system was “safe and sound” following the recent collapse of two US banks and the rescue of Swiss lender Credit Suisse. He also said that the risk of recession for the UK “has gone down quite a lot,” adding that the prospects for economic growth are “now considerably better.”

Despite the increase in prices, official figures showed that retail sales volumes rose by 1.2% in February, with discount department stores reporting strong sales, and sales in food shops also rising. However, the Office for National Statistics noted evidence of people spending less in pubs and restaurants due to cost of living pressures.