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BANK GOVERNOR WARNS FIRMS RAISING PRICES ‘HURTS PEOPLE’

Published
3 hours ago
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Image source, Getty Images
By Tom Espiner
Business reporter, BBC News


Raising prices could drive up the cost of living even further and would hurt the
least well-off most, the Bank of England governor has warned firms.

"If all prices try to beat inflation we will get higher inflation," Andrew
Bailey told the BBC's Today programme.

He said higher inflation "hurts people" and warned the Bank would raise rates
again if prices continued to increase.

Mr Bailey was speaking a day after the Bank raised interest rates to their
highest level for 14 years

The move came after prices jumped unexpectedly last month.

"I would say to people who are setting prices - please understand, if we get
inflation embedded, interest rates will have to go up further and higher
inflation really benefits nobody," he added.



Soaring inflation in the UK and around the world has been squeezing households'
finances as energy and food prices rise.

Cost of living pressures hit the least well-off hardest, because they spend a
bigger part of their income on food and fuel.

The Bank has been steadily increasing interest rates as it seeks to make
borrowing money more expensive and encourage people to spend less, with the aim
of stopping prices rising so quickly.

But higher interest rates also hit some people with existing loans such as
mortgages.

 * What the interest rate rise means for you

Mr Bailey said firms should bear in mind that the rate of inflation is likely to
drop sharply this year.

He said he had not yet seen evidence of companies putting up prices more than
necessary, and said that he understood they needed to "reflect the costs they
face".




'RESTAURANTS ALREADY TAKING A HIT'

Reacting to Mr Bailey's warning, Martin Williams, chief executive of Rare
Restaurants, which includes the chains Gaucho and M, said that businesses had
already been restrained in raising prices.

"If restaurants had reflected the increased 'costs they face' in the past year
as Mr Bailey suggests, a simple side salad would be priced at £20," Mr Williams
said, adding that beer would be £20 per pint, and a small steak would be £100.

He said restaurant owners had "responsibly tried to balance keeping pricing low,
and keeping their businesses viable" while facing surging wage, food and energy
bill costs.

Energy bills support for businesses will become less generous from April, with
trade group UK Hospitality saying in January it would lead to an 82% rise in
bills for firms such as pubs, restaurants and hotels.

"That's going to hit entrepreneurs, start-up businesses incredibly hard," said
Mr Williams. "The impact will be the closure of restaurants."

UK Hospitality's chief executive Kate Nicholls said no business wanted to raise
its prices for fear of losing sales. "It is a minor miracle that many have held
off increases for as long as they have," she said.



To suggest the sector "stomach these staggering cost increases ignores the real
and stark situation" facing many businesses across the UK, she added.

"The reality is that without adequate government support, doing as the governor
asks will just mean business failure and job losses."

A government spokesperson said it had provided an "unprecedented" energy support
package for firms, "and further support from April onwards".


PROFITEERING CLAIM

Mr Bailey's comments came after Tesco chairman John Allan said in January that
food firms may be using inflation as an excuse to hike prices further than
necessary.

Last year, Mr Bailey called on workers to not ask for big pay rises, sparking a
backlash from unions.

The rate at which prices are rising remains close to its highest level for 40
years, hitting 10.4% in the year to February - more than five times the Bank of
England's target.

Higher food prices are one of the main drivers fuelling overall inflation, with
the cost of everyday basics such as eggs, cheese and milk rising sharply.


UK BANKS 'SAFE'

Mr Bailey also said he believed the UK banking system was "safe and sound"
following the recent collapse of two US banks and the rescue of Swiss lender
Credit Suisse.

"We have banks that people can rely on, and that's critical," he said. "I had to
deal with a lot of problems in the global financial crisis when we were not
really in that situation all of the time, let's be honest."

He also said that the risk of recession for the UK "has gone down quite a lot",
adding that the prospects for economic growth are "now considerably better".




HOW CAN I SAVE MONEY ON MY FOOD SHOP?

 * Look at your cupboards so you know what you have already
 * Head to the reduced section first to see if it has anything you need
 * Buy things close to their sell-by-date which will be cheaper and use your
   freezer

Read more tips here





RELATED TOPICS

 * Inflation
 * Bank of England
 * Andrew Bailey


MORE ON THIS STORY

 * Bank 'more hopeful' on UK economy as rates rise
   
   1 day ago
   
   

 * Food firms raising prices unnecessarily - Tesco
   
   22 January
   
   

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