Surging consumer prices in the U.K. have put increasing pressure on the central bank to increase interest rates to cool inflation, but officials warned that slow growth will contain price gains, according to Financial Times. Following the release of the quarterly inflation report, Bank of England Governor Mervyn King said that raising rates immediately to ease inflationary pressure could “induce a much deeper recession.” The BOE said that the U.K. economy must grow by a quarter point less than had been previously thought in order to keep inflation from spiking further.
The bank’s Monetary Policy Committee laid out four reasons for the decoupling of output and inflation: companies selling to the U.K. are seeking to widen profit margins on higher import prices; slow investment has cut into the economy’s capacity; pre-emptive price increases on inflation expectations; and demand for wage increases to meet the higher cost of living. King argued that there was “no black and white” in the discussion about raising interest rates, and asserted that there was no certainty over the future for the economic recovery and the course of inflation.