The head of the Bank of England, Andrew Bailey, has entered the debate over whether the UK economy is rebounding from the cost-of-living crisis.
In an interview with the BBC, Bailey stated that the UK economy has “made a turnaround”.
His remarks come ahead of the release of data on Friday, which is anticipated to confirm that the UK has exited the recession.
While the government has been advocating that the economy has rebounded, the Labour party has labelled such claims as “illusory”.
The discussion surrounding the robustness of the economic recovery is likely to be a key issue in the upcoming general election campaign.
Prime Minister Rishi Sunak has previously asserted that the economy has “made a turnaround”, but many households continue to face financial strain.
Earlier this week, Labour’s shadow chancellor, Rachel Reeves, criticised the government for giving a misleading picture of the economy, stating that claims of a return to prosperity were “entirely disconnected from the ground realities”.
When asked if the claims of an economic turnaround, as suggested by Ms Reeves, amounted to “gaslighting” the British public, Mr Bailey responded: “We present our best assessment of what we observe.”
“All the evidence we have indicates that we have made a turnaround. However, I don’t want to depict it as a robust recovery… that’s not what we’re observing, but we are now witnessing a recovery, and it appears we’ve made a turnaround.” After the Bank of England maintained interest rates at 5.25% for the sixth consecutive time on Thursday, Mr Bailey expressed his optimism about the easing of price increases, but added that the Bank needed more proof that inflation would drop to 2% and remain there before lowering interest rates.
Official data due on Friday is expected to indicate that the economy expanded in the first quarter of 2024. The Bank has predicted a 0.4% growth for this period, which would signal the end of the recession that concluded last year.
“It appears to have been the mildest recession by a significant margin,” Mr Bailey commented.
The governor stated that the UK economy is now entering a “phase of gradual growth” – not a “robust recovery” – but highlighted the “positive news” of rising household incomes.
Darren Jones, Labour’s shadow chief secretary to the Treasury, stated that while it was the Bank of England’s “independent prerogative” to set interest rates, the persistence of interest rates at 5.25% was “unfortunate for individuals at home who have to reset their mortgages for the forthcoming years at a higher rate and for those who have to pay rent for their homes”.
He added that households were “not experiencing any improvement, when they are informed by Conservative ministers celebrating this week that the country has made a turnaround, when it hasn’t”.
Mr Bailey also suggested that there could be more interest rate reductions than anticipated over the next year or so, indicating a “somewhat lower trajectory of interest rates” being necessary to achieve the Bank’s 2% inflation target.
He expressed his “slight bewilderment” that market interest rates, including mortgage rates, had begun to increase, following trends in the US markets.
“The inflation dynamics in this country are different from the US,” he noted.
