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Tuesday, May 13, 2025

Bank of England chief says it never feels good to raise rates - but it is their job

Bank of England chief says it never feels good to raise rates - but it is their job

It's critical the Bank of England takes action on rates, the governor of the Bank of England tells Ed Conway.

The head of the Bank of England - responsible for the rise in interest rates - has said it never feels good for central bankers to raise rates but it is their job.

Asked how it feels to be doling out the medicine of interest rate rises, in an effort to reduce inflation, Andrew Bailey said it never feels good for central bankers.

"I don't think anyone should think that central bankers in any sense feel good doing this. But it's our job."

Speaking to Sky News data and economics editor Ed Conway, Mr Bailey said he was doing so to bring down inflation, and that if actions weren't taken, things would get worse.

"Much bigger" job losses could result, he said, explaining that it was critical the Bank takes action.

"I'm afraid if we get into that situation, the action that will have to be taken thereafter to restore stability would be much larger and much more damaging. It's so critical that we take action. So the pain is necessary to prevent something worse."

He denied accusations that the rate rises are bringing about a recession, saying such a statement was unfair. Instead, Mr Bailey placed the blame on economics shocks, the war in Ukraine and high gas and goods prices.

"I don't think it's correct to say that we are precipitating recession. Unfortunately, the UK, along with other countries, particularly European countries, has been hit by a huge shock to national real income. And that huge shock of course, is really to do with the war in Ukraine. And the huge impact it's having on the energy prices, particularly gas prices".

For mortgage holders whose rates have risen the governor said the market rates are too high. More mortgage products should return to the market, he added.

There is some further good news for fixed mortgage holders.

Fixed rate borrowers and been impacted by rates rising "very, very substantially", Mr Bailey said, in the second half of September

"I think the good news is those market prices are now restoring stability. They're coming back down to where they were earlier in September. And that should feed through into the mortgage market."

The number of mortgages on the market has fallen since the mini-budget as the Bank of England reacted and signalled it would increase interest rates to curb inflation. The Bank's statements caused uncertainty among lenders over how much rates would increase and when.

Mr Bailey's comments come after the Bank unveiled the biggest interest rate hike for three decades. It raised the base rate of interest by 0.75 percentage points to 3% and said that the UK is already in recession.

It warned that the UK could face a protracted contraction in the coming years, with high inflation and the unemployment rate climbing to 6.5% - the highest since the financial crisis.

The length of this forecasted recession - eight successive quarters in which gross domestic product shrinks - would make it the most protracted since comparable records began but less deep than most previous downturns, including during the financial crash and the 1980s.

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