Bank of England boss Andrew Bailey this morning warned firms that raising prices will risk allowing high inflation to persist, hurting the "least well off".

"If all prices try to beat inflation, we will get higher inflation," said Mr Bailey.

He warned interest rates would rise again if prices continued to increase.

Mr Bailey was speaking a day after the Bank raised the interest rate by 0.25% to 4.25% - the highest level for 14 years after prices jumped unexpectedly last month.

"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 said. "It hurts people and it particularly hurts the least well off in society."

Mr Bailey had said yesterday he was "much more hopeful" for the UK economy, while the Bank also said the UK was no longer heading into an immediate recession.

"We were really a bit on a knife edge as to whether there would be a recession...but I'm a bit more optimistic now," he added.

Tackling rising prices

Interest rates have been rising steadily in an attempt to tackle increasing prices.

Inflation remains close to its highest level for 40 years at 10.4% in the year to February - more than five times the Bank's target.

The jump in rates means that mortgage costs for some homeowners will rise and some savers could get better returns.

The BBC says people on typical tracker mortgage deals will pay about £24 more a month following the latest increase and those on standard variable-rate mortgages face a £15 jump.

The Bank voted to raise rates after the unexpected rise in inflation last month, but said it still expected the cost of living "to fall sharply over the rest of the year".

It said this was largely due to the government extending energy-bill help in the Budget to maintain typical household bills at £2,500 a year, as well as falls to wholesale gas prices.

7-2 vote

The nine members of the Monetary Policy Committee agreed to raise the rate by a majority of seven to two, with the Bank saying "cost and price pressures have remained elevated".

But shadow chancellor Rachel Reeves said higher interest rates would cause concern for families.

"The government thinks the cost-of-living crisis is over, but the reality is that too many families are dealing with a Tory mortgage penalty and battling with soaring food prices," she claimed.

FTSE 100

The UK's top share index, the FTSE 100, was down 40 points at 7,459 shortly after opening this morning, following yesterday's 67-point loss.

Brent crude futures were 0.25% higher at $76.10 a barrel.

Companies reporting today

  • Half-year results: JD Wetherspoon, Smiths Group

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