Bank of England Governor Andrew Bailey has pushed back against concerns that the central bank is underestimating inflation risks, insisting it is “not complacent” about returning inflation to target despite warnings from senior policymakers.
His comments come after the Bank’s chief economist Huw Pill warned that policymakers should not downplay the risk of inflation remaining elevated due to rising energy prices linked to geopolitical tensions.
Mr Bailey said he was “not happy” that Consumer Prices Index (CPI) inflation remains above the Bank’s 2% target, but stressed that there were differing views within the Monetary Policy Committee and that debate was a strength of the institution.
Latest official figures show UK CPI inflation at 2.8%, unchanged from the previous month, with the Bank expecting it to rise further later this year, potentially peaking at around 3.2%.
The Governor acknowledged that inflation is proving more persistent than previously expected, but argued that underlying economic conditions suggest it should return to target over time.
However, he cautioned that the adjustment may take longer than previously forecast.
The Monetary Policy Committee remains divided over the appropriate response to inflation pressures.
Mr Pill has argued that inflation above target is “problematic” given the Bank’s mandate and has supported further interest rate rises in recent meetings.
At the most recent vote, he was joined by another MPC member in favour of higher rates, while the majority, including Mr Bailey, voted to hold rates steady.
Mr Bailey said the UK economy is currently facing a “negative supply shock”, combining higher inflation with weaker growth, making policy decisions more difficult.
He said policymakers must balance the risk of persistent price pressures against signs of softness in economic activity.
“We’re not complacent at all,” he said, adding that the central bank remains focused on returning inflation to target “even if frustratingly later than expected”.
The remarks highlight growing internal debate at the Bank over how aggressively to respond to inflation risks, particularly as global energy markets remain volatile.
With inflation still above target and interest rates unchanged at recent meetings, attention is now shifting to whether the Bank will maintain its current stance or resume tightening if price pressures persist.
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