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

Bank of England Governor Acknowledges Rate Hike Challenges Amid Global Energy Crisis

Andrew Bailey, head of the Bank of England, emphasized to the BBC that the UK’s central bank will not hastily decide on raising interest rates, even as the world grapples with a major energy disruption. During a discussion at the International Monetary Fund (IMF) meeting in Washington, Bailey noted that escalating oil and gas prices would inevitably influence inflation. Yet, he highlighted that multiple variables complicate the decision-making process, particularly before the upcoming rate review on 30 April.

IMF Advises Caution on Rate Increases

The IMF issued a warning earlier this week, urging central banks to avoid rapid hikes in borrowing costs following the Middle East conflict. Bailey acknowledged the IMF’s serious recommendations, stating the Bank of England is carefully considering their implications. Before the US-Israeli strikes on Iran six weeks ago, expectations were widespread for rate cuts this year. However, the looming threat of higher prices, driven by energy cost spikes, has shifted forecasts toward potential rate stability or increases.

“There’s really difficult judgments to be made,” Bailey said. “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.”

Previously, signs pointed to a softening labor market and businesses struggling to pass on price hikes to consumers, which suggested inflation might not persist. Nevertheless, the Bank remains awaiting clear data on how the conflict impacts the UK economy, its prices, or activity levels. Bailey stressed that “it’s really too early to form strong judgments on that.”

Energy Dependency and Conflict Duration

He underscored the UK’s heavy reliance on gas as an energy source, noting this would amplify the conflict’s effects. However, Bailey argued that the key factor lies in how long the conflict lasts. “The faster there is a resolution to this situation—particularly in terms of the supply of energy from the Gulf—the easier and better the outcome will be,” he added, highlighting the critical importance of swift progress.

On Wednesday, UK Chancellor Rachel Reeves criticized the Iran war, citing its role in driving up prices and stifling growth, during a media appearance at the IMF event. Meanwhile, US Treasury Secretary Scott Bessent defended the conflict, asserting that a small amount of economic hardship was acceptable for long-term security. He raised concerns about Iran’s potential to threaten the UK with nuclear missiles, framing security as a more urgent priority.

A UK government spokesperson clarified that there is currently no evidence Iran is targeting Europe with missiles. Bessent’s remarks coincided with the IMF’s warning that the US-Israeli war with Iran could push the global economy into recession, with the UK projected to face the most severe consequences among major economies.