Bank boss tells BBC he won’t rush interest rate rises

Bank boss tells BBC he won’t rush interest rate rises

Andrew Bailey, the Bank of England’s top official, emphasized that the UK’s central bank is cautious about accelerating interest rate decisions, even as global markets grapple with a major energy crisis. During a BBC interview at the International Monetary Fund (IMF) gathering in Washington, he acknowledged that elevated oil and gas prices would inevitably influence inflation. Yet, he stressed that determining the right rate path is complicated by multiple factors, with the next key decision looming on 30 April.

While the IMF cautioned against hastily increasing borrowing costs following the US-Israeli strikes on Iran, Bailey noted the Bank of England is considering this advice seriously. Earlier, before the conflict erupted six weeks ago, rate cuts were anticipated for the year. However, the looming threat of higher prices due to increased energy costs has shifted expectations, leading to speculation about maintaining current rates or even raising them.

Central banks typically raise rates when inflation surges to curb demand. But when economic growth slows, they often cut rates to stimulate spending and investment. Bailey highlighted that energy price hikes could simultaneously drive up costs and weaken growth, complicating the Bank’s strategy. “There’s really difficult judgments to be made,” he remarked.

“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.”

Before the conflict, signs emerged that the labor market was easing and firms faced challenges in passing on price increases to consumers. These signals suggested inflation might not persist long-term. Still, the Bank awaits clearer evidence on how the war impacts the UK economy, affecting both price trends and economic activity. “It’s really too early to form strong judgments on that,” Bailey added.

He underscored the UK’s reliance on gas as an energy source, noting its significant influence on the economy. However, the primary factor remains the conflict’s duration. “The faster there is a resolution to this situation—particularly regarding energy supply from the Gulf—the easier and better the outcome will be,” Bailey explained.

On Wednesday, UK Chancellor Rachel Reeves expressed criticism of the Iran war, citing its effect on prices and growth, during a media appearance at the IMF event. Meanwhile, US Treasury Secretary Scott Bessent argued that some economic hardship is acceptable for long-term security. He highlighted the risk of Iran threatening the UK with nuclear weapons, framing security as a more pressing issue. A UK government spokesperson clarified:

“There is no assessment Iran is trying to target Europe with missiles.”

The IMF had previously warned that the conflict could push the global economy into recession, with the UK projected to be the most affected among major economies.