Bank of England chief Andrew Bailey is this week set for one of his toughest spells since taking over from Canadian Mark Carney two years ago as head of the UK’s monetary authority.
Bailey, 63, will tomorrow have to defend the Bank’s performance in taming a cost of living squeeze that risks plunging the UK into a recession to parliament’s Treasury Committee.
Business secretary Kwasi Kwarteng on Sky News today called into question his effectiveness at keeping a lid on inflation.
“It is a matter of fact that when the Bank of England became independent in 1997, they had an inflation target of two per cent. Inflation is running into almost double digits now. That is an issue, clearly,” he said.
New inflation figures published on Wednesday will pile more pressure on the governor, likely showing the cost of living is nearly five times the Bank’s mandate.
The rate of price rises may have reached as high as 9.3 per cent last month as a result of the energy watchdog’s 54 per cent uplift to the cap on bills hitting in April, according to Deutsche Bank.
Threadneedle Street itself expects inflation to peak at 10.2 per cent just after the summer.
Rates have climbed from a record low 0.1 per cent to a 13-year high of one per cent in the space of six months as the Bank scrambles to douse down inflation.
They should have started rising in the second half of last year to get ahead of the inflation spike, the National Institute of Economic and Social Research said last week.
The UK is likely to tip into a recession sooner than predicted due to households already cutting spending even before living costs surge further.
GDP figures last week came in much weaker than expected, revealing the economy shrank 0.1 per cent in March – before the bill cap rise and tax hikes took effect.
Bailey is facing a balancing act of getting inflation back to target without inflicting unnecessary long-term damage to the UK economy.
Former rate setters have accused Bailey for overseeing a muddled communications strategy at the Bank.