Bank of England chief urges firms to hold back price rises

The Bank of England governor, Andrew Bailey, has called on businesses to hold back price rises, telling them that interest rates will need to rise again unless inflation falls.

Bailey, who was speaking after the central bank raised its base rate on Thursday from 4% to a 14-year high of 4.25%, said inflation was too high and Threadneedle Street would need to take further action unless it began to fall by the summer.

The warning came after the latest official data showed the annual rate of inflation unexpectedly rose to 10.4% in February, from 10.1% in January. The Bank’s target is 2%.

“We’ve got to get inflation down,” he said. “Inflation is too high at the moment. Now we think that it will fall sharply really from the early summer throughout the rest of the year. And we’re pretty confident about that. But it hasn’t come down yet and we had some news earlier this week which was a bit higher than we expected it to be. There were probably some temporary factors in there.”

Speaking on BBC Radio 4’s Today programme, Bailey added: “I would say to people who are setting prices: please understand if we get inflation embedded, interest rates will have to go up further.

“When companies set prices I understand they have to reflect costs they face. But what I would say, please, is that when we are setting prices and people are looking forwards we do expect inflation to come down sharply this year – and I would just say: please bear that in mind.”

The boss of JD Wetherspoon said it could be “catastrophic” for pubs and restaurants to hold off raising prices.

Tim Martin said Bailey was right to warn businesses against trying to “beat inflation” with price rises, but he added that with rapidly increasing costs in energy, labour and food, companies had little choice.

“If input costs are high, which they are in the hospitality industry, it’s very difficult for pub companies to avoid price rises, and it might produce catastrophic results if Mr Bailey’s advice was taken too literally – although he’s right to say it.”

Martin said “ferocious” inflation was hitting Wetherspoon, which has 800 outlets, even as the pub chain reported a return to profitability and a boost in sales.

Asked if he thought companies were profiteering, Bailey said he had no evidence to support this concern but urged business owners to consider price restraint.

Research on company accounts by the UK’s largest private sector union, Unite, this month found that large corporations had fuelled inflation with price increases that went beyond rising costs of raw materials and wages. Highlighting a trend labelled “greedflation”, analysis of the top 350 companies listed on the London Stock Exchange showed that average profit margins had risen from 5.7% in the first half of 2019 to 10.7% in the first half of 2022.

Economists are increasingly concerned that multinationals have passed on higher prices to increase profits, pushing inflation to a level not warranted by increases in raw materials or wage rises.

Nestlé and Procter & Gamble are among the big global businesses to increase profits over the last year.

Responding to Bailey’s remarks, the Unite general secretary, Sharon Graham, said a “lacklustre acknowledgment” that companies had played a role in rising prices was a welcome development. But she said the governor had failed to understand the extent of the profiteering crisis.

“Andrew Bailey’s lacklustre acknowledgment of the role price rises are having on inflation is a step forward after years of targeting workers,” she said. “However, [he] is still refusing to acknowledge the depth of the crisis. The UK is in the grip of a profiteering epidemic – it is greedflation, not workers’ wages, that is fuelling the cost of living crisis.”

‘To people who are setting prices: please bear in mind that we do expect inflation to fall sharply this year’

Andrew Bailey Bank of England governor