Bank boss tells BBC he won’t rush interest rate rises
Bank of England Governor Cautious on Interest Rate Hikes Amid Global Energy Crisis
At the International Monetary Fund (IMF) meeting in Washington, Bank of England governor Andrew Bailey emphasized that the UK’s central bank will not act hastily on interest rates, even as the world grapples with a significant energy disruption. He acknowledged that rising oil and gas prices would inevitably impact inflation, but highlighted the complexity of deciding on rate adjustments, particularly ahead of the Bank’s upcoming meeting on 30 April.
The IMF has cautioned against rapid increases in borrowing costs following the Middle East conflict, urging central banks to consider the broader economic implications. Bailey noted that the Bank of England is incorporating this “serious advice” into its decision-making process. Prior to the US-Israeli strikes on Iran six weeks ago, expectations were leaning toward rate cuts, but the looming threat of higher prices due to energy costs has shifted speculation toward maintaining or raising rates.
Central banks typically raise interest rates to curb inflation when price pressures intensify, yet they may lower rates to stimulate economic activity if growth slows. Bailey warned that the surge in energy costs could simultaneously elevate inflation and hinder economic growth, complicating the Bank’s approach. “There’s really difficult judgments to be made,” he 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.”
Impact of the Conflict on Economic Stability
Before the conflict, signs pointed to a softening labor market and businesses struggling to pass on price increases to consumers, suggesting inflation might not persist. However, Bailey stressed the need for “meaningful data” to assess how the conflict is affecting the UK economy, including its influence on prices and activity. “It’s really too early to form strong judgments on that,” he said.
“The UK’s reliance on gas for energy production means there will be a notable effect, but the key factor lies in how long the conflict lasts,” Bailey added.
Meanwhile, the IMF’s managing director, Kristalina Georgieva, expanded concerns beyond energy, citing disruptions to global supplies of sulphur, urea, helium, and naphtha. Bailey acknowledged the system’s resilience but warned that prolonged conflict could strain it. “The faster there is a resolution to this situation—especially regarding energy supply from the Gulf—the better the outcome will be,” he noted.
Bailey also shared reassuring news about the UK’s banking system, stating there were “no concerns” about its stability. He countered arguments that the financial system had been over-regulated, arguing that “success is when nothing happens and it is resilient.” For homebuyers and owners worried about borrowing costs, he recommended stable policies that “deliver sensibly over time,” combining central bank and fiscal measures like taxation and government spending.
On the same day, UK Chancellor Rachel Reeves criticized the Iran conflict, linking it to rising prices and growth challenges. In contrast, US Treasury Secretary Scott Bessent defended the economic pain caused by the war, citing the risk of Iran threatening Europe with nuclear missiles. “A small bit of economic pain is worthwhile for long-term international security,” he said. The UK government clarified that there was “no assessment Iran is trying to target Europe with missiles,” as the conflict’s full economic impact remains uncertain.