Bank of England Governor, Andrew Bailey, informed Parliament that the UK is drawing closer to the peak level of interest rates, although he cautioned about the potential for rising inflation in August due to fuel prices.
Speaking to a committee of MPs during a Treasury session, Bailey stated that the trajectory for interest rates is no longer clearly upward, as they currently stand at 5.25 percent.
Over the past 18 months, interest rates have steadily increased, creating pressure for borrowers but benefiting savers in an effort to bring UK inflation back to its target of 2 percent. Some economists anticipate a rise to 5.5 percent this month as the Bank continues to face pressure to manage inflation.
Bailey explained, “There was a time when it was evident that rates needed to rise in the future, and the question for us was how much and over what period. We are no longer in that situation, and that’s why we have shifted our approach to rely more on evidence and data.”
While Bailey indicated that the UK is approaching the peak of the interest rate cycle, he stopped short of stating that they have reached it, emphasizing that a decision is yet to be made by policymakers later this month.
Bailey maintained earlier predictions that inflation would significantly decrease by the end of the year, despite ongoing economic scrutiny. In July, the Consumer Prices Index inflation dropped to 6.8 percent, down from 7.9 percent in June.
Bailey also expressed surprise at the persistent pressure exerted by private-sector workers on UK inflation through wage bargaining in recent months. He has previously urged employers not to raise salaries by more than the inflation rate, deeming such increases “unsustainable.”
