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

Bank of England Governor Declines to Rush Rate Hike Decisions

Andrew Bailey, the governor of the Bank of England, stated that the central bank would not hastily decide on increasing interest rates, even as the globe faces a significant energy crisis. During an interview with the BBC at the International Monetary Fund (IMF) meeting in Washington, Bailey acknowledged that higher oil and gas prices would influence inflationary pressures. However, he emphasized that other variables have made the rate decision “very, very difficult” ahead of the next review on 30 April.

“There are substantial uncertainties about both the development of events and how they will affect the UK economy,” Bailey remarked.

The IMF issued a cautionary note on Wednesday, advising against quick rate hikes in response to the Middle East conflict. Bailey credited the IMF with providing “serious advice,” which the Bank of England is actively considering. Before the US-Israeli strikes on Iran two months ago, the Bank was anticipated to ease monetary policy. Yet, concerns over surging energy costs have shifted expectations, with some analysts now predicting rates might remain stable or even rise this year.

Central banks typically raise rates to combat inflation by reducing consumer demand. Conversely, they lower rates during economic downturns to stimulate borrowing and spending. Bailey highlighted that the dual effect of energy price hikes—boosting inflation while stifling growth—adds complexity to the Bank’s task.

“Tough decisions are necessary, but we’re not rushing to make them,” Bailey said, underscoring the need for careful evaluation amid uncertainty.

Prior to the conflict, signs suggested a softening labor market and businesses struggling to pass on cost increases to consumers. These indicators, Bailey noted, implied inflation might not persist as a long-term issue. However, the Bank remains awaiting “concrete data” to determine the conflict’s impact on the UK economy, its prices, and activity.

The UK’s reliance on gas as a primary energy source intensifies the potential consequences of the conflict. Yet, Bailey stressed that the “key factor is how long the conflict lasts.” He added that “a quicker resolution, particularly regarding energy supply from the Gulf, would greatly enhance the outcome,” calling this a pivotal moment for the economy.

On Wednesday, UK Chancellor Rachel Reeves criticized the Iran conflict, highlighting its effects on prices and growth during a media interview at the IMF event. US Treasury Secretary Scott Bessent, meanwhile, argued that a “modicum of economic hardship” is acceptable for securing long-term international stability. He suggested Iran’s nuclear threat to the UK could justify the costs. A UK government representative clarified, “There’s no evidence Iran is targeting Europe with missiles.”

“The war with Iran could push the global economy into recession, with the UK among the hardest-hit,” the IMF warned, as Bessent’s remarks aligned with this assessment.