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

Bank of England Governor to Delay Interest Rate Decision

Andrew Bailey, the governor of the Bank of England, has stated that the central bank will not act hastily on interest rate increases, even as the world grapples with a significant energy crisis. During a conversation with the BBC at the IMF meeting in Washington, he emphasized that while higher oil and gas prices will inevitably affect inflation, the decision to adjust rates remains complex due to multiple variables.

The IMF recently cautioned against rapid rate hikes following the Middle East conflict, urging central banks to avoid overreacting. Bailey acknowledged the IMF’s guidance, noting the Bank of England is carefully evaluating its implications. Initially, prior to the US-Israeli strikes on Iran six weeks ago, expectations leaned toward rate cuts this year. However, the threat of elevated energy costs has shifted that outlook, with some analysts now suggesting rates might stay unchanged or even rise.

Central banks typically raise interest rates to curb inflation when price pressures intensify, but they often lower them to stimulate economic activity during slowdowns. Bailey explained that the dual effect of higher energy prices—potentially both inflating costs and stifling growth—adds to the challenge. “There’s really difficult judgments to be made,” he said, highlighting the uncertainties surrounding the conflict’s economic fallout.

“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, indicators suggested a softening labor market and businesses struggling to pass on price hikes to consumers, which pointed to inflation easing. Nevertheless, Bailey stressed the need for “meaningful data” to assess the conflict’s effect on the UK, stating it’s too early to form strong conclusions. He noted the country’s heavy reliance on gas, but emphasized that “the real determinant here is the duration of [the conflict].”

On Tuesday, the IMF’s managing director, Kristalina Georgieva, highlighted the risk of disrupted supplies for products like sulphur, urea, helium, and naphtha, alongside oil and fuels. Bailey recognized the system’s resilience but warned that prolonged conflict could strain it. “The faster there is a resolution to this situation—particularly in terms of energy supply from the Gulf—the easier and better the outcome will be,” he added.

Bailey also shared a “very positive news” regarding the banking sector, stating there are no current concerns. While some criticized excessive regulation, he argued that stability is key, saying “success is when nothing happens and it is resilient.” He suggested that the best approach for homebuyers and owners worried about borrowing costs is to maintain “credible policies that deliver sensibly… over time,” combining both central bank and fiscal measures.

UK Chancellor Rachel Reeves expressed strong opposition to the war with Iran, citing its impact on prices and growth, during a media appearance at the IMF event. Meanwhile, US Treasury Secretary Scott Bessent defended the conflict, claiming that a “small bit of economic pain” is necessary for long-term international security. He referenced Iran’s potential nuclear threat to the UK, asserting security concerns outweigh economic ones. The UK government clarified that there is no evidence Iran is targeting Europe with missiles, as Bessent’s remarks were made amid the IMF’s warning of a possible global recession triggered by the US-Israeli conflict.