BoE's Bailey urges firms to look at inflation forecasts when setting prices

LONDON (Reuters) - British businesses should consider official forecasts showing inflation will fall this year when setting their prices, Bank of England Governor Andrew Bailey said on Friday.

"When companies set prices, I understand that they have to reflect the costs that they face," Bailey told the BBC.

"But what I would say, please, is that when we are when we are setting prices in the economy and people are looking forward, we do expect inflation to come down sharply this year and I would just say please bear that in mind," he added.

Bailey went on to say he did not have any evidence that companies were putting prices up more than necessary.

Britain's central bank raised its main interest rate to 4.25% on Thursday from 4%, a day after official figures showed an unexpected rise in the annual rate of consumer price inflation to 10.4% in February.

Bailey repeated that the central bank expected inflation to fall sharply this year as the impact of last year's steep rise in energy prices fell out of year-on-year price comparisons, and that he was "very relieved" that inflation had stabilised.

"Now I do see encouraging signs. There is evidence of encouraging progress. But we have to be extremely vigilant on that front," he said.

"And I would say to people who are setting prices, please understand that if we get inflation embedded, interest rates will have to go up further."

(Reporting by David Milliken and Farouq Suleiman; editing by William James)