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

UK Central Bank Hesitant on Rate Hikes Amid Global Energy Crisis

Andrew Bailey, head of the Bank of England, emphasized that the UK’s central bank will not hasten its decision on raising interest rates, even as the world grapples with a significant energy disruption. During a BBC interview at the International Monetary Fund (IMF) meeting in Washington, he noted that elevated oil and gas prices would inevitably influence inflation. However, he stressed that the decision to adjust rates remains complex, with the next review set for 30 April.

The IMF issued a caution on Wednesday, advising central banks to avoid quick rate increases following the Middle East conflict. Bailey acknowledged the IMF’s guidance, stating the Bank of England is carefully evaluating its implications. Prior to the US-Israeli strikes on Iran six weeks ago, rate cuts were anticipated for this year. Yet, the looming threat of higher prices due to energy cost surges has shifted expectations toward maintaining or raising rates.

Central banks typically elevate interest rates to curb inflation by reducing demand. Conversely, they lower rates when economic activity slows to stimulate borrowing and spending. Bailey highlighted the dual challenge of energy price hikes, which could both inflate costs and stifle growth, complicating the Bank’s strategy. “We’re facing tough calls,” he said, “as uncertainties persist about how this situation will unfold and how it will affect the UK economy.”

Before the conflict, indications suggested a softening labor market and businesses struggling to transfer price increases to consumers. These signs pointed to inflation being a temporary issue. Nevertheless, the Bank of England remains awaiting clear data on the conflict’s impact on the UK’s economy, prices, and activity. “It’s too soon to make solid conclusions,” Bailey remarked.

The UK’s reliance on gas as an energy source amplifies the potential effects of the crisis, though he emphasized the conflict’s duration is the key factor. “The quicker the conflict resolves—especially regarding energy supply from the Gulf—the more favorable the outcome,” he added. Meanwhile, UK Chancellor Rachel Reeves expressed concerns over the Iran war, citing its effect on prices and growth, during a media session at the IMF event. In contrast, US Treasury Secretary Scott Bessent argued that a “moderate economic strain” is justified for long-term security, citing the risk of Iran threatening the UK with nuclear missiles. The IMF warned that the US-Israeli conflict with Iran could trigger a global recession, with the UK likely to suffer the most among major economies.

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

A UK government spokesperson clarified that there is no evidence Iran aims to target Europe with missiles. Bessent’s remarks coincided with the IMF’s warning about the potential for recession, highlighting the UK as the most vulnerable large economy in the region.