Bank governor defends response to rising prices

Bank of England governor Andrew Bailey has defended the bank's performance following criticism that it has not done enough to rein in rising prices.

Saying it was a "bad situation", the governor said he could not have foreseen events such as the war in Ukraine that were driving prices higher by creating supply shocks.

The Bank has warned it could hit 10% by the autumn, well above its 2% target.

As a result, households are reining in their spending which is hitting growth.

Mr Bailey was asked about this when he appeared before the Treasury Select Committee, with its chair - the Conservative MP Mel Stride - putting to him the criticism that the Bank had been "asleep at the wheel".

In response, Mr Bailey emphasised that he was not happy about the high rate of inflation, adding: "This is a bad situation to be in."

But he insisted that most of the above-target inflation was due to global prices not domestic factors.

"80% of the overshoots over the target... is due to energy and tradable goods," he said.

When asked whether he could have done things differently, he said: "I don't think we could. I don't think we could foresee a war in Ukraine."

He pointed to a further wave of Covid, particularly in China, as another factor putting pressure on prices.

Rates rose to 1% from 0.75%, their highest level since 2009 and the fourth consecutive increase since December.

The Bank's policymakers now expect the UK economy to shrink rather than expand in the final three months of this year. It is also expected to contract by 0.25% in 2023, down from its previous forecast of 1.25% growth.

While that would not technically be a recession - defined as the economy getting smaller for two consecutive quarters - it would leave the UK at a real risk of one.