Bank of England boss weighs in on UK economy row

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 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, Ms Reeves accused the government of "gaslighting" Britain over the state of the economy, saying suggestions the feel-good factor is returning are "completely out of touch with the realities on the ground".

Asked if, as suggested by Labour's shadow chancellor Rachel Reeves that suggestions of a "turnaround" was "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, 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 making cuts.

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, marking the end of recession it fell into 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 an upturn in post-inflation household incomes.

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 necessary 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.