Andrew Bailey: Supply matters

Speech by Mr Andrew Bailey, Governor of the Bank of England, at the London School of Economics, London, 27 March 2023.

The views expressed in this speech are those of the speaker and not the view of the BIS.

It is a great pleasure to be at the London School of Economics.

Introduction

The past few years have been a time of macroeconomic upheaval. A series of significant economic events have deeply affected the UK economy. This includes the change in our trading relationship with the European Union, the Covid pandemic with shutdowns of some sectors of the economy and supply chain bottlenecks in others, and the rise in energy prices caused by Russia's brutal war on Ukraine and its people. These shocks have affected the UK economy in different ways. But they have all eroded the terms on which we trade with the outside world. This has made us poorer as a country; manifesting itself in a rise in the prices we have to pay for the things we buy as consumers.

UK Consumer price inflation is currently at 10.4%. This is much too high, and we need to, and will, bring it back down to the 2% target. That is why last Thursday the Monetary Policy Committee increased Bank Rate at the eleventh meeting in a row, to 4.25%. We have increased Bank Rate by more than 4 percentage points since December 2021. These increases are being felt by households and businesses across the country.

I am afraid that monetary policy cannot make the shocks to our national real income go away. But what monetary policy can – and must – do is to make sure that the inflation that has come to us from abroad does not become lasting inflation generated at home.