Recession WON’T be as bad as we feared

Bank chief claims UK has ‘turned the corner’ with inflation set to tumble

BRITAIN has ‘turned the corner’ on spiralling price rises, and a looming recession will not be as bad as feared, the Bank of England governor said yesterday.

In an unexpectedly upbeat intervention, Andrew Bailey welcomed the latest figures showing that the rate of inflation had fallen from 10.7 per cent to 10.5 per cent, its second drop in two months.

And the 63-year- old said that inflation will ‘fall quite rapidly’ for the rest of the year.

Mr Bailey said that while the country is about to enter recession, it will be ‘long but shallow’ and Britain faces an ‘easier path’ out than predicted.

And in a boost for homeowners, the governor also signalled an end to the series of aggressive interest rate hikes as he gave a nod to suggestions that the Bank’s rate will peak at 4.5 per cent.

Mr Bailey’s comments mark a dramatic change in tone from his warning just two months ago that the UK was facing its longest recession since records began.

At the time he said that the country’s tight jobs market presented one of the ‘largest upside risks’ to inflation in 25 years.

That followed on from a warning last year that British consumers faced ‘ apocalyptic’ food price increases, which he described as a ‘major concern’. In an interview with Wales’s Western Mail newspaper published yesterday, Mr Bailey said the UK was facing a recession – defined as two consecutive quarters of economic decline.

He added: ‘It has unfortunately got the characteristic of being long, but shallow.’

But the governor went on: ‘In the last couple of months particularly, energy prices have started to come off and gas prices too, quite a lot actually since the beginning of the winter.

‘That is encouraging and I think it is a product of the fact that Europe has higher stock levels and we had a warmer winter than we might have done.

‘It does mean there is more optimism now that we are sort of going to get through the next year with an easier path there.’

Speaking at the manufacturing base of family-owned bakery firm Brace’s in Blackwood, in south Wales, Mr Bailey said that last month’s fall in inflation was ‘the beginning of a sign that a corner has been turned’.

In another significant boost for families, he hinted that the Bank’s interest rate would peak at 4.5 per cent.

Since December 2021, the rate, which affects the amount of interest paid on mortgages and other kinds of debt, has jumped from 0.1 per cent to 3.5 per cent.

Data this week – showing wages growing at the fastest rate in two decades – piled pressure on the Bank of England to once again raise interest rates next month.

‘A dramatic change in tone’

Markets expect a 0.5 percentage point hike next month, bringing the rate to 4 per cent, the highest level since 2008.

But in a sign that the cycle of aggressive interest rate increases may be coming to an end, Mr Bailey noted that the Bank had not pushed back on suggestions that 4.5 per cent will be the peak. He said: ‘I am not endorsing 4.5 per cent, but what you may have noticed in December is that we did not include the comment that we made in November about the market being, in our view, rather out of line.’

There’s more optimism we are going to get through the next year with an easier path

ANDREW BAILEY YESTERDAY