- By Michael Race
- Business reporter, BBC News
The governor of the Bank of England will say that it is “important that we see work” to slow the rise in prices in a speech to the financial world later.
Andrew Bailey says that reducing inflation to 2% is “very important” because people “need to trust that their hard-earned money will hold its value”.
Currently, inflation, which is the price increase rate, is 8.7% – more than four times the Bank’s target of 2%.
Chancellor Jeremy Hunt will also speak at the event at London’s Mansion House.
He will take to the stage to unveil plans for pension fund reform aimed at boosting economic growth, promising a £1,000-a-year pension boost to the average earner.
Mr Hunt will unveil an agreement with leading pension companies to put 5% of their investments into early-stage businesses in the fintech, life science, biotech and clean technology sectors by 2030.
‘Delivering on our mandate’
Businesses, as well as households, have been hit with higher costs as inflation remains stubbornly stubborn in the UK.
The Bank has been raising interest rates continuously in a bid to combat this.
Its base rate – which has a direct impact on borrowing costs for things like mortgages and credit cards, but also influences savings rates – is now 5%, up from near zero 18 months ago . Some analysts predict interest rates will rise to 6.5%, but others say they could go as high as 7%.
Making it more expensive for people to borrow money, and more profitable for them to save in theory is why people spend less and leads to prices not rising as fast.
On Monday night at the Mansion House, Mr Bailey said: “It is vital that we see work, deliver on our mandate to return inflation to the 2% target, and provide the environment of price stability in which the economy of UK can improve.”
He added that while the UK economy has failed to grow beyond pre-pandemic levels, there has been “unexpected resilience” in the face of external shocks, such as Covid and the war in Ukraine, with low unemployment levels and avoiding a recession so far.
But the Bank of England boss will stress that the “tightening” of the labor market, with many businesses struggling to fill positions, has contributed to price inflation being “stickier than previously expected”.
“Both price increases and wages at current rates are not the same as the inflation target,” he added.
But there are also accusations that some industries are profiting by overcharging customers to increase profits.
‘Evolutionary not revolutionary’
Before Mr Bailey speaks, Mr Hunt will outline “Mansion House Reforms” designed to make the UK the most innovative and competitive financial center in the world, the Treasury said.
The chancellor is expected to promise “evolutionary not revolutionary” reforms to encourage pension funds to invest up to £50bn in high-growth businesses, particularly in the areas of fintech and life sciences.
Mr Hunt will outline the “three golden rules”. His first rule is that “first and foremost” funds should ensure the best results for savers.
“Secondly, we will always prioritize a strong and diverse gilt market,” the chancellor is expected to say. “Those who invest in our gilts help fund vital public services and any changes must recognize the important role they play.” Finally, Mr Hunt insists any changes to pension funds must strengthen, rather than compromise, the UK’s global competitiveness.
But the chancellor said there would be “no sustainable growth without first eliminating the inflation that is stifling investment and undermining consumer confidence”.
He also promised that the government would continue to honor “the responsibilities of those who are struggling the most” in the face of inflation.
About 400 people are scheduled to attend the event in the 18th Century building.
After former chancellor George Osborne’s wedding was targeted by a protester at the weekend, organizers at Mansion House said talks were taking place about security at the venue.
A spokesman for the City of London Corporation, which manages the area, said “we always have adequate protection in place”.
Just Stop Oil said it did not comment on its activities before any demonstration.
The Treasury told the BBC it would not comment on security issues.