BoE’s Bailey says getting inflation to 2% will be ‘hard work’

LONDON (Reuters) -Bank of England Governor Andrew Bailey said getting inflation down to the central bank’s 2% target will be “hard work” as most of its recent fall was due to the unwinding of the jump in energy costs last year.

“The rest of it has to be done by policy and monetary policy,” Bailey said in an interview with website ChronicleLive published on Monday.

“And policy is operating in what I call a restrictive way at the moment – it is restricting the economy. The second half, from there to two, is hard work and obviously we don’t want to see any more damage.”

The BoE kept rates on hold for a second consecutive meeting earlier this month after 14 increases in a row to fight an inflation rate that peaked above 11% just over a year ago before falling to 4.6% in October.

The BoE’s latest forecasts show it expects inflation to return to 2% only at the end of 2025.

Bailey acknowledged the impact of higher interest rates on households caused by higher mortgages and rents. But he repeated his message that it was too soon for the BoE to think about cutting interest rates.

“I’m very conscious of the position of the less well-off,” he told ChronicleLive.

“But we do have to get (inflation) down to 2% and that’s why I have pushed back of late against assumptions that we’re talking about cutting interest rates or we will be cutting interest in anything like the foreseeable future because it’s too soon to have that discussion.”

Financial markets are currently fully pricing a first rate cut by the BoE in September next year.

(Writing by William Schomberg, editing by Sarah Young)