The governor of the Bank of England has said he is “very sorry” that households face rising living costs as he defended himself against accusations that he misled investors into believing interest rates would be increased.
Andrew Bailey told the BBC that inflation is “clearly something that bites on people’s household income and they will feel that”.
He added: “I’m sure they already feel that, in terms of prices going up, and I’m very sorry that’s happening.
“We want to see the causes of inflation, which are to a considerable degree global and supply issues, tackled as soon as possible so we can get to a world where inflation is stable and down at the target... we’re not going back to the 70s. That was a very different era.”
Mr Bailey was criticised by some investors for comments he made which were interpreted as a clear signal that the Bank would raise interest rates this week. Instead, its monetary policy committee (MPC) voted to keep its base rate at 0.1 per cent.
Putting interest rates up is seen as a way to control inflation but Mr Bailey said current rises in prices were caused by global factors outside of the Bank’s control.
"Raising interest rates won’t produce more gas, [and] it won’t produce more semi-conductor chips,” he said.
“Where we have to use interest rates is where we see the potential for demand to rise or the potential for wage pressures to come into play, which can be self-perpetuating and we will do that.”
The Bank’s remit is to keep the rate of inflation to between 2 per cent and 3 per cent. Its latest forecast is that inflation will hit 5 per cent in April before falling back.
Mr Bailey said: “We expect interest rates to rise and we are very clear. If you ask the question, ‘Why haven’t you done it now?’, the answer is all to do with the labour market. There were a lot more people using the furlough scheme right up to the end.
“The labour market looks tight in this country at the moment but the missing piece of evidence is just what has happened after the end of the furlough scheme, and we don’t have any data to guide us on that.”
In its latest forecast, the Bank cautioned that the UK and world economies had grown more slowly than it had previously expected.
“Growth is somewhat restrained by disruption in supply chains,” the MPC said in its latest report.
“Alongside the rapid pace at which global demand for goods has risen, this has led to supply bottlenecks in certain sectors. There have also been some signs of weaker UK consumption demand.”