Bank boss tells BBC he won’t rush interest rate rises
Bank of England Governor Hesitant to Act on Interest Rates Amid Global Uncertainty
At the International Monetary Fund meeting in Washington, Bank of England governor Andrew Bailey emphasized that the UK’s central bank will not hastily decide on interest rate adjustments. Despite a significant energy crisis, he noted that higher oil and gas prices would eventually affect inflation. However, Bailey highlighted that the decision remains complex, with the next meeting on 30 April approaching.
IMF Advises Caution in Rate Hikes
The IMF warned earlier that central banks should avoid quick rate increases following the Middle East conflict. Bailey acknowledged the fund’s “serious advice,” as the Bank of England evaluates how geopolitical tensions might influence the UK economy. Before the US-Israeli strikes on Iran six weeks ago, rate cuts were anticipated. Now, rising energy costs have shifted expectations, with some predicting rates might stay stable or even rise.
“There’s really difficult judgments to be made,” Bailey stated. “We’re not going to rush to judgments on those things, because there are a lot of uncertainties around this, not just how it’s going to play out, but also how it’s going to pass through into the UK economy.”
Higher energy prices could simultaneously drive up inflation and hinder economic growth, complicating the Bank’s role. Bailey pointed to signs of a softening labor market and businesses struggling to pass on price increases as indicators that inflation might not persist. Yet, he stressed the need for “meaningful data” to assess the conflict’s impact on the UK’s economic activity and price levels.
The UK’s reliance on gas as an energy source amplifies the potential consequences of the Middle East conflict. Bailey said the key factor is the conflict’s duration, with a swift resolution—especially in energy supply from the Gulf—leading to a better outcome. “The faster there is a resolution to this situation,” he added, “the easier and better the outcome will be.”
Diverging Views on the Conflict’s Impact
UK Chancellor Rachel Reeves criticized the war on Iran, citing its effect on prices and growth, during a media interview at the IMF event. Conversely, US Treasury Secretary Scott Bessent argued that a “small bit of economic pain” is acceptable for long-term security. He mentioned the risk of Iran threatening the UK with nuclear missiles, framing security as a more pressing concern.
“Bessent’s comment came as the IMF warned the US-Israel war with Iran could plunge the global economy into recession, with the UK expected to be hardest hit of the large economies,” a UK government spokesperson noted.
With the conflict ongoing, the Bank of England remains cautious, balancing the risks of inflation against the slowdown in economic activity. Bailey’s focus on data and uncertainty underscores the complexity of navigating a volatile global landscape.
