Bank of England focuses on returning inflation to 2% target
The Bank of England is determined to return UK inflation to its 2% target as prices continue to soar.
In a speech at King’s College in London, chief economist and executive director for monetary analysis at the Bank of England Huw Pill said it was “essential” to bring inflation back to target.
In May 2022, inflation – the average pace at which consumer prices are rising – reached 9.1%, but this rise predated the spike in petrol prices over June.
The Bank forecasts a further rise to around 11% later in the year. Pill said the Bank recognises the “hardship associated with elevated inflation rates”, adding:
“For those who spend a higher proportion of their income on energy and food – unfortunately, a group particularly numerous among the less well off – recent price rises have imposed a significant squeeze on their real incomes.”
“It is essential we bring inflation back down to target, so as to reduce the uncertainties facing households and allow firms to plan for the future.”
However, Pill warned that the Bank of England could only work to bring inflation down in the “medium term” with the monetary policy tools it has at its disposal.
These tools include the cessation of asset purchases, the reduction of the quantitative easing asset and gilt sales.
Of note is the Bank’s control over interest rates, which the Bank of England increased to 1.25% in June, in the hope that it would encourage people to save more and spend less, effectively taking money out of the economy.
However, some say this will not tackle the root causes of inflation which is currently fueled by global factors, and just hurt individuals and businesses looking to borrow.
The Bank of England itself recently tweeted:
“Businesses are also under pressure from higher interest rates and the rise in prices. We expect the number of highly-indebted businesses to increase in the year ahead, particularly in more vulnerable sectors.”
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