Governor of the Bank of England Andrew Bailey has admitted he is “very uneasy” about spiking inflation across the economy.
It came as the central bank boss and two other rate-setters on the Bank’s Monetary Policy Committee (MPC), Catherine Mann and Michael Saunders, explained their decision to hold interest rates as 0.1% earlier this month.
Members of the nine-strong MPC voted by seven-to-two in favour of keeping rates unchanged at 0.1%.
Two members, which included Mr Saunders, were outvoted in calling for a rise to 0.25%
Speaking to MPs, Mr Bailey said the decision to maintain rates was a “very close call” but stressed that he had never said the Bank would raise rates at the meeting, after the financial markets reacted poorly to the decision to hold.
“As a point of guidance, in terms of emphasising the primacy of the inflation target and the link to medium-term inflation expectations, I thought it was critical that we put our foot down at that point,” he said.
“I am concerned that there is a view in some quarters that we’ve gone off that and just sort of never admitted it. It’s not true.”
Nevertheless, Mr Bailey also told MPs that there are concerns about the current inflationary picture and that inflation is significantly above its target rate of 2%.
“I’m very uneasy about the inflation situation – I want to be very clear on that.
“It is not of course where we wanted to be, to have inflation above target.”
The latest Consumer Price Index inflation rate dipped to 3.1% for September, according to the Office for National Statistics.
However, after its latest meeting the Bank warned higher energy prices would see inflation leap to 4.5% soon and hit around 5% next April, the highest level for a decade.
Mr Saunders said that he voted for a rate rise due to the tight labour market and signs there has been a pick-up in wage growth but shrugged off comparisons to the 1970s.
“There is no risk of a wage price spiral in the UK,” he told MPs.
“Talk of a return to the 1970s is completely misplaced. The economy has changed in many ways since then.
“Having said that, the labour market is tight, with widespread skills shortages and we’ve seen the average pace of pay growth pick up to a little bit above the pre-pandemic pace and pay growth for new hires is picking up.
“I felt, given that evidence, that the likelihood of a pick-up in the general pace of pay growth was sufficiently high that we should start now to withdraw some of the stimulus that was put in place.”