Andrew Bailey warns of 'very subdued' prospects for Britain

Mr Bailey said he remained committed to his goal of reducing price increases to 2%. Photo: Alastair Grant/AP

Andrew Bailey warned that the UK's economic outlook remained «very subdued» as he indicated interest rates would remain high for a long time.

The Bank of England governor said the “last mile” of fighting inflation would require higher borrowing costs, adding that he remained committed to his goal of keeping price rises to 2%.

He said “significant progress” had been made in reducing inflation in recent months, but added that the UK should not get carried away because “there is still a lot to do”.

“This is why the decision at our last meeting was so difficult,” Mr. Bailey said at an event organized by the Institute of International Finance in Marrakech. «And they will remain tough.»

“We have not forecast a recession, but this is a very conservative forecast, and policy is restrictive, and that is how it should be, because if we do not bring inflation back to a sustainable target level, the forecast will be worse.”

Mr Bailey said interest rates were now in «restrictive» territory, meaning they were slowing the economy: «We're seeing policy action being limited and clearly that's really weighing on the outlook for economic activity.»< /p>

Inflation is currently 6.7% and the Bank does not expect it to return to the 2% target until 2025.

Chancellor Jeremy Hunt also warned on Friday that Britain's financial position has worsened as the Treasury grapples with higher debt payments.

Mr Hunt, who is also attending the annual meeting The International Monetary Fund said that «we are not in that territory.» » when asked about tax cuts.

He said the Autumn Statement would reveal Britain's plans to escape the low growth trap.

He added that the UK's innovative sectors had allowed it to grow faster than Germany, but the UK needs to address productivity improvements and business investment.