The governor of the Bank of England (BoE) has warned that during the present energy crisis, Britain will be impacted by rising inflation more severely than any other major country.
According to Andrew Bailey, the energy price shock that all European economies will experience would certainly cause the UK’s economy to weaken earlier and more severely than other economies, according to dpa.
The “structural legacy” of Covid in the labor market, which caused businesses in Britain to suffer with a labor shortage, made the issue worse.
“Unfortunately, there is going to be a further step-up in UK inflation later this year because that’s a product of the way the energy price cap interacts with the energy prices we have observed over the last few months,” Bailey told a European Central Bank (ECB) conference in Sintra, Portugal, on Wednesday.
“I think the UK economy is probably weakening rather earlier and somewhat more than others.”
The governor said that in the latest inflation data he had seen a shift in the causes of high inflation from high prices of goods that were in short supply after Covid-19, towards goods and services affected by the Russian-Ukrainian war.
To address inflation, the BoE needed the option of half-point interest rate rises.
“There will be circumstances in which we will have to do more.
We’re not there yet in terms of the next meeting. We’re still a month away, but that’s on the table. But you shouldn’t assume its the only thing on the table – that’s the key point,” Bailey added.
“The key thing for us is to bring inflation back down to target and that is what we will do.”
The BoE has so far raised rates five times since December.
