Bank of England boss warns interest rates will rise again if businesses hike prices

The highest food prices in nearly 45 years have been driving inflation. Credit: PA

The Bank of England’s boss has warned businesses that raising prices could lead to higher inflation which will hurt the "least well off".

Interest rates were lifted to 4.25% from 4% after policymakers on the Bank’s nine-strong Monetary Policy Committee (MPC) voted seven to two for the rise, following a surprise jump in inflation last month.

Rising Consumer Prices Index (CPI) inflation was driven by the highest food prices in nearly 45 years.

The central bank is under pressure to strike a balance between the need to tame inflation and calm markets spooked by banking turmoil, following the collapse of Silicon Valley bank and the Credit Suisse rescue.

Chancellor Jeremy Hunt said he supports the Bank’s decision to hike rates further as "the sooner we grip inflation the better for everyone."

In an interview with BBC Radio 4’s Today programme, the Bank’s governor, Andrew Bailey, said: "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: "If all prices try to beat inflation we will get higher inflation."

On Thursday, Mr Bailey said he is more optimistic that the UK can avoid a recession after being on a "knife edge" in February.

The Bank gave a surprise upgrade to its forecast for the UK economy, saying it now expects slight growth in the second quarter of the year having anticipated last month it would decline by 0.4%.

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As a result, the country would avoid imminently falling into a recession - which is defined as two consecutive quarters of negative growth.

Mr Bailey said: "Back at the beginning of February, we were really a bit on a knife edge as to whether there would be a recession, certainly we thought the economy would be quite stagnant.

"I’m not saying it’s off to the races, let’s be clear, but I am a bit more optimistic."