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

UK Central Bank Hesitates on Rate Hikes Amid Global Uncertainty

At the International Monetary Fund (IMF) meeting in Washington, Bank of England governor Andrew Bailey emphasized that the UK’s central bank will not hastily decide on increasing interest rates, despite a severe energy crisis gripping the globe. He acknowledged that soaring oil and gas prices would likely influence inflation, but highlighted the complexity of the situation, noting that the next rate decision is set for 30 April.

The IMF recently cautioned that central banks should avoid quick rate hikes following the Middle East conflict, urging caution amid economic volatility. Bailey stated that the Bank of England is carefully considering the IMF’s “serious advice” as it navigates the challenges of rising energy costs and their potential ripple effects.

Before the US-Israeli strikes on Iran six weeks ago, expectations were widespread that the Bank might cut rates this year. However, the looming threat of higher prices due to energy inflation has shifted speculation toward the possibility of maintaining current rates or even raising them.

Central banks typically raise interest rates to curb inflation when price pressures intensify. Conversely, they lower rates to stimulate economic activity during slowdowns. Bailey pointed out that the current dilemma arises because energy price increases could both elevate inflation and dampen growth, complicating the Bank’s strategy.

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

Earlier, signs suggested a softening labor market and businesses struggling to pass on price hikes, which Bailey cited as indicators that inflation might not persist. Yet, he stressed the need for “meaningful data” to assess the conflict’s impact on the UK economy, noting that the situation remains too fluid for firm conclusions.

He added that the UK’s heavy reliance on gas for energy means the conflict’s consequences will be significant. “The real determinant here is the duration of [the conflict],” he said. “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.”

UK Chancellor Rachel Reeves expressed strong concerns over the Iran conflict, citing its effect on prices and economic growth, during a media interview at the IMF event. Meanwhile, US Treasury Secretary Scott Bessent argued that a “small bit of economic pain” is justified for long-term international security, warning of Iran’s potential to threaten the UK with nuclear missiles.

A government spokesperson clarified that there is no evidence Iran is targeting Europe with missiles, adding that Bessent’s remarks were made as the IMF warned the US-Israeli conflict could push the global economy into recession, with the UK anticipated to suffer the most among major economies.