The Governor of the Bank of England has said the Bank should not increase its inflation target, stressing that it is important to give households confidence it can bring down the rising cost of living.
Andrew Bailey also told members of the House of Lords’ economic affairs committee that he believes inflation would currently be at the 2% target level were it not for the conflict in the Middle East.
The central bank boss said there should not be an argument to increase the inflation target to 3% to adjust for increases in living costs rising faster than the current target rate.
Mr Bailey said: “I don’t think that’s the answer. That would be too simplistic an answer.
“It comes back to the position, where we have to focus more on how we manage the path to target and ultimately get there because we’ve got to give the public confidence that the target is real.”
UK inflation was most recently recorded at 2.8% in April, having dipped from 3.3% in March.
The slowdown was linked to a drop in energy prices, but soaring fuel costs prevented inflation dropping further towards the Bank’s target.
On Tuesday, Mr Bailey said: “It is enormously frustrating, because, and I think the evidence subsequent to the conflict breaking out bears this out, I was expecting I would be here this afternoon and we would be at the inflation target.
“The overshoot is almost entirely due to the conflict in the Gulf and it is quite likely that there will be more to come because there is naturally a delayed pass through.”
At the Bank’s previous monetary policy committee (MPC) meeting in April, it predicted that inflation would accelerate in the coming months.
Bank forecasts predicted that inflation could peak at between 3.6% and 6.2%, depending on the severity of the conflict in the Middle East.
At the meeting, policymakers voted to keep interest rates at 3.75%. Economists expect at least one increase to interest rates later this year.
