British companies should take into consideration official forecasts showing inflation to fall this year when setting their prices, Bank of England Governor Andrew Bailey said on Friday.
“When companies set prices, I understand they should reflect the costs they face,” Bailey told the BBC.
“But what I would say, please, is that when we’re setting prices in the economy and people are looking ahead, we expect inflation to come down dramatically this year. And I’d just say, please keep that in mind.” he said.
Bailey said he has no evidence the companies are raising prices more than necessary.
The UK central bank on Thursday raised its key interest rate to 4.25% from 4%, a day after official data showed an unexpected rise in the annual rate of consumer price inflation to 10.4% in February .
Bailey reiterated that the central bank expects inflation to fall sharply this year as the impact of last year’s energy price hikes emerged from annual price comparisons, and he said he was “very relieved” that that inflation has stabilised.
“Now I see encouraging signs. There is evidence of encouraging progress. But we must be extremely vigilant on this front,” he said.
“And I would say to the people who are setting prices, please understand that if we factor in inflation, interest rates are going to have to go up even more.”
Financial markets were pricing in yet another Bank of England interest rate hike this year on Friday, taking them to a peak of 4.5%.
Source: Terra
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