(Alliance News) - The governor of the Bank of England on Friday pleaded with UK companies to remember that inflation will drop sharply later this year when they are setting prices or risk hurting those on the lowest incomes.
Andrew Bailey said that if companies set prices that help embed inflation in the UK economy, it will not benefit anybody and warned that the central bank would put up interest rates in response.
His comments come a day after the BoE decided to hike the UK bank rate to 4.25% from 4.00%. It was the 11th rise in a row.
In an interview with BBC Radio 4's Today programme, Bailey said: "If all prices try to beat inflation we will get higher inflation."
He 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 and higher inflation really benefits nobody."
But Bailey insisted that he was not saying that companies should take hits to their profits or that some firms are putting up prices more than is necessary.
He said that companies have to set prices based on the costs they face, which have been rising rapidly over the last year.
But he added that, when looking to set future prices, companies should "please bear in mind" that these cost rises are expected to slow considerably by the end of the year.
Bailey said higher inflation "really benefits nobody", adding: "It hurts people and it particularly hurts the least well off in society."
Bailey said that he thinks that the risk of a recession has receded in recent weeks after the BoE upgraded its forecast for the second quarter of the year.
It now expects gross domestic product to rise slightly in the April to June period, up from a previous forecast that it would drop 0.4% in those months.
"I think if you look at it in the context of a risk, then the risk has gone down quite a lot," he said.
"Now, you can't rule out a risk, risks don't work like that.
"But what I would say very clearly is that the prospects for the economy in terms of growth are now better, considerably better.
"And I think it is reasonable to say that there's a pretty strong likelihood that we will avoid a recession this year.
"But we've still got to put in place the conditions for much stronger growth in the economy and sustainable growth in the economy."
By PA Reporters
source: PA
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