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The Telegraph
The Telegraph
3 Aug 2023


The Bank of England has signalled that interest rates could remain above 5pc until 2026 to tame inflation as it admitted that higher wages and prices are becoming embedded in the economy.

Policymakers voted 6-3 to raise interest rates by 0.25 percentage points to a 15-year high of 5.25pc in the fourteenth consecutive increase.

Andrew Bailey, the Governor of the Bank of England, said it was vital that officials “make absolutely sure” that inflation fell “all the way back to the 2pc target”.

His comments came as Bank officials said pay rises had continued to be stronger than expected, with the dangers of a wage-price spiral now beginning to “crystallise”.

Inflation, which currently stands at 7.9pc, is also expected to fall more slowly and not get back to the Bank’s 2pc target for another two years.

This is conditioned on interest rates peaking at 6pc and remaining above 5pc for the next three years.

Policymakers warned that upward pressure on prices and wages were “likely to take longer to unwind than they did to emerge”, as some workers keep putting pressure on their employers to raise pay and companies attempt to protect profit margins.

The Monetary Policy Committee (MPC) that sets interest rates said that while interest rates are now considered to be at “restrictive” levels, meaning they are bearing down on the economy, they will need to be “sufficiently restrictive for sufficiently long to return inflation to the 2pc target”.

Mr Bailey said it was “good news” that inflation had started to ease back, but his comments also suggest that the Bank is likely to keep interest rates higher for longer in order to ensure inflation keeps falling back.