The Bank of England’s boss has warned businesses that raising prices could lead to higher inflation which will hurt the “least well off”.
Interest rates were lifted to 4.25% from 4% after policymakers on the Bank’s nine-strong Monetary Policy Committee (MPC) voted seven to two for the quarter-point rise following a surprise jump in inflation last month.
Chancellor Jeremy Hunt said he supports the Bank’s decision to hike rates further as “the sooner we grip inflation the better for everyone”.
He added: “If all prices try to beat inflation we will get higher inflation.”
Mr Bailey said higher inflation “really benefits nobody”, adding: “It hurts people, and it particularly hurts the least well off in society.”
On Thursday, Mr Bailey said he is more optimistic that the UK can avoid a recession after being on a “knife edge” last month.
The Bank gave a surprise upgrade to its forecast for the UK economy, saying it now expects slight growth in the second quarter of the year having anticipated last month it would decline by 0.4%.
It means the country would avoid imminently falling into a recession – which is defined as two consecutive quarters of negative growth.
Mr Bailey said: “Back at the beginning of February, we were really a bit on a knife edge as to whether there would be a recession, certainly we thought the economy would be quite stagnant.
“I’m not saying it’s off to the races, let’s be clear, but I am a bit more optimistic.”