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BoE’s Bailey warns high energy prices could force tighter rates

Bailey said it is “going to get harder” to keep Bank Rate unchanged the longer energy prices stay high, warning the BoE should not wait for full evidence that costs are affecting inflation expectations.

Reported · Written up by our desk · Central Banks

Bank of England Governor Andrew Bailey said persistently high energy prices could eventually make it harder for the central bank to keep interest rates unchanged, reinforcing a more hawkish tone after the MPC’s recent stance shift, Action Forex reported.

Speaking at the Monetary Economics Conference hosted by the University of Oxford, Bailey said it is “going to get harder to maintain that stance the longer we have high energy prices,” while adding that evidence of broader inflation spillovers remains “quite subdued” and it is still “early days” to judge how strongly the shock will feed into wider pricing behavior.

Bailey warned the BoE cannot wait for complete evidence that higher energy prices are affecting inflation expectations before acting, and he framed the risk as a prolonged energy shock becoming embedded in expectations and broader prices.

Last week, Bailey voted with the 6-3 majority to keep Bank Rate at 3.75%, and he and several deputy governors raised the possibility of a future increase, according to Action Forex.

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