By Faisal Islam
Economics editor
The Bank of England boss has weighed in on a row over whether the UK economy is recovering from the cost-of-living crisis.
Andrew Bailey told the BBC that the UK economy had “turned a corner”.
He made the comments ahead of figures due out on Friday expected to confirm that the UK is no longer in recession.
The government has pressed the case that the economy has turned around, but Labour has described such views as “delusional”.
The debate about the strength of the economic recovery is set to be a central battleground in the general election campaign.
Prime Minister Rishi Sunak has previously said that the economy had “turned a corner” – but many households’ budgets remain under pressure.
Earlier this week, Labour shadow chancellor, Rachel Reeves, accused the government of misleading people over the state of the economy, saying suggestions that the feel-good factor is returning were “completely out of touch with the realities on the ground”.
Asked whether, as suggested by Ms Reeves, the suggestions of a turnaround amounted to “gaslighting” the British people, Mr Bailey replied: “We set out our best judgement of what we see.”
“All the evidence we see is that we have turned a corner from that. I don’t, however, want to sort of portray it as a strong recovery… that isn’t what we are seeing, but we are now seeing a recovery, and we seemed to have turned a corner.”
After the Bank of England held interest rates at 5.25% for the sixth time in a row on Thursday, Mr Bailey said he was “very encouraged” by easing price rises, but added the Bank had to see more evidence that inflation would fall to 2% and stay there before cuting interest rates.
Official figures on Friday are expected to show the economy has grown in the first three months of 2024. The Bank has forecast 0.4% growth for this period, which would mark the end of the recession at the end of last year.
“It looks like it was by quite a long way the mildest recession,” said Mr Bailey.
The governor said the UK economy was now going into a “gradual growth phase” – not a “strong recovery” – but that there was “good news” in household incomes increasing.
Darren Jones, Labour shadow chief secretary to the Treasury, said while it was the Bank of England’s “independent right” to set interest rates, interest rates remaining at 5.25% was “bad news for people at home having to reset their mortgages for the years ahead at a more expensive rate and people to have to pay rent for their homes”.
He added households were “not feeling any uptick, when they are told by Conservatives ministers doing victory laps this week that the country has turned a corner, when it hasn’t”.
Mr Bailey also said that there could be more interest rate cuts than expected over the next year or so, pointing to a “somewhat lower path of interest rates” being required in order to hit the Bank’s 2% inflation target.
He added he was “somewhat puzzled” that market interest rates, including mortgage rates, had started to rise, following developments in the US markets.
“The dynamics of inflation in this country are different to the US,” he said.
