UK economy's 'unexpected resilience' helps drive inflation, Bailey warns
Governor of the Bank of England, will warn on Monday that the “unexpected resilience” of the British economy has exacerbated the pressure on wages and demand that is fueling stubbornly high inflation. He is due to tell the annual Mansion House dinner in the City of London that current pay arrangements are unsustainable if the central bank is to meet its goal of reducing inflation to its 2 percent target, adding: "It is crucial that Let's see the work through." Bailey will tell City figures at dinner that the UK economy has shown unexpected resilience in the face of inflationary shocks unleashed by the Covid pandemic and Russia's invasion of Ukraine, noting that the unemployment rate has stands at 3.8 percent. He will go on to say that no one wants to "see higher unemployment or weaker growth" but that inflation is proving to be "stickier than expected," according to a copy of his speech released by the central bank.The interaction of above-target headline inflation with labor market tightness and demand pressure in the economy has made underlying developments in price inflation of goods and services more difficult than Job Function Email Database previously expected. ”Bailey will say. “Both price and wage increases at current levels are not consistent with the inflation target.” Annual private sector wage growth rose to 7.6 percent in the three months to April, according to the latest official data. Labor market figures for May will be released on Tuesday. Prime Minister Rishi Sunak is due to decide this month whether to back pay rises of around 6 per cent for public sector workers, the average that independent review bodies are expected to recommend for Bailey will tell the Mansion House meeting that the BoE is closely monitoring developments in the labor market and is determined to return inflation to the 2 per cent target. Consumer price inflation currently stands at 8.7 percent.
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Financial markets expect the BoE to continue raising interest rates beyond the current level of 5 percent. Sunak and Jeremy Hunt, the chancellor, have signaled that pay rises of around 6 per cent for public workers in 2023-24 will not be supported if they fuel inflation. “We will not resolve these public sector pay disputes with any measures that are inflationary,” Hunt told the Financial Times last week. The governor will say he expects headline UK inflation to “fall noticeably for the rest of the year” due to lower energy prices. “Food prices should also fall, as lower commodity prices are passed on to prices in stores,” he will add. Hunt is expected to use his own Mansion House speech to support the BoE in reducing inflation. Last week he told the FT that he would "double down" in that fight. Hunt said he would “not inject billions of pounds of extra demand” into the UK economy, adding: “We will not tolerate tax cuts if they make the battle against inflation more difficult.
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