LONDON’S BUSINESS NEWSPAPER BAILEY: WE’LL KEEP HIKING A WHILE YET

GOVERNOR SIGNALS NO RATE SHIFT ON THE HORIZON

INTEREST rates may need to rise even further to tame inflation, the governor of the Bank of England said yesterday, signalling further pain for mortgage holders and businesses.

Speaking at a conference on the cost of living crisis in London, Bailey said if the Bank does “too little with interest rates now, we will only have to do more later on”.

“The experience of the 1970s taught us that important lesson,” he said, referring to a dynamic in which businesses hiked prices to offset soaring energy costs, prompting workers to demand pay rises, forcing firms to raise prices further still.

Bailey and the rest of the monetary policy committee (MPC) have already hoisted borrowing costs at the fastest pace since the 1980s, lifting them ten times in a row to a 15-year high of four per cent.

Cumulatively, since December 2021, rates have climbed nearly 400 basis points, breaking the UK free from over a decade of record low borrowing costs of nearly zero per cent.

The governor did sound a note of caution about piling too much pain onto the economy, which could ultimately push inflation below his two per cent target in the coming years by crushing spending. Hiking rates is usually synonomous with holding back headline economic growth.

“We have to monitor carefully how the tightening we have already done is working its way through the economy to the prices faced by consumers,”

Bailey said.

“Some further increase in Bank Rate may turn out to be appropriate, but nothing is

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the MPC is now “placing more emphasis on the substantial tightening already delivered and would like to

JAMES BOND WOULD APPROVE Aston Martin picks up speed

call time on its hiking cycle as soon as it feasibly can”.

Bailey has spearheaded a tough tightening cycle to tackle inflation, which has raced ahead to its highest level in over 40 years.

The rate of price increases peaked last October at 11.1 per cent and has since dropped three months in a row to 10.1 per cent.

Analysts reckon a combination of the Bank’s rate increases and energy prices falling rapidly could push inflation back to Bailey’s target by the end of the year. Expectations of a quick inflation decline this year had prompted market participants to bet the Bank is close to ending its rate hike campaign at its next meeting on 23 March with a final 25 basis point rise.

However, a batch of data recently signalling the UK economy is responding strongly to tighter financial conditions and may even avoid a recession has triggered an upward shift in markets’ peak rate expectations to nearly five per cent.

They did fall back after Bailey’s speech.

SUPERCAR maker Aston Martin’s upbeat forecast for 2023 saw investors put their pedal to the metal yesterday.

Shares rose around 20 per cent in early trading after the historic marque guided towards “significant growth in profitability” next year, despite pre-tax losses of near on half a billion pounds.

Executive chairman Lawrence Stroll said “the heavy lifting” of turning around Aston’s performance was behind it and, despite supply issues in 2021 and 2022, the firm was set to deliver as many as 7,000 wholesale sales next year.

Aston will be looking to emulate the success of rivals Rolls-Royce and Bentley, both of whom enjoyed record sales in 2022 despite a constant stream of economic headwinds.

Shares settled around four per cent up on their opening price as investors got their heads around the numbers.