Andrew Bailey vows to hold the line on inflation in face of sickly UK outlook

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Andrew Bailey was at pains to stress his resolve to further hike interest rates if necessary on Thursday, as the Bank of England governor warned there was a long way to go before policymakers could relax about inflation. 

But if bleak forecasts laid out by the bank prove accurate, Bailey will face mounting political pressure in 2024 to start easing policy given the economic strains that lie ahead for households and businesses.

The BoE’s outlook for the UK economy was grim, even if the bank did not predict an outright recession as its Monetary Policy Committee voted to hold rates at 5.25 per cent. The bank said the economy will barely grow for the rest of the year before flatlining for all of 2024.

Unemployment would reach 4.7 per cent at the end of next year, while household consumption flatlines and credit availability for businesses declines, the bank predicted.

“The MPC is saying that the UK economy is in for another year of stagnation — and even though it’s not forecasting a recession, one is perilously close,” said Thomas Pugh, economist at the audit firm RSM UK.

The punishing months ahead will coincide with the run-up to the next UK general election, which is expected in 2024 and must happen by January 2025 at the latest.

The BoE was blunt in acknowledging its own responsibility for the slumping outlook after increasing interest rates 14 times in a row before the past two decisions to hold.

But Bailey made clear his view that the bank’s battle against the worst inflationary upsurge in decades was far from over. The BoE’s prediction was that while inflation will fall in the short-term, reaching the bank’s 2 per cent target will take until 2025 — later than previously predicted.

“I want to…