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BoE’s Bailey urges stronger financial markets for future shocks

Bailey said longer high energy prices could raise inflation risks, even as he noted energy cost pass-through into broader inflation remains subdued.

Reported · Written up by our desk · Central Banks

Bank of England Governor Andrew Bailey said financial markets need to be better prepared to absorb future shocks without amplifying them. FXStreet reported that Bailey called for strengthening core market functioning so policymakers can respond more effectively during downturns.

Bailey linked more frequent shocks to weaker underlying growth and a tougher fiscal backdrop, saying that a succession of shocks can push government debt higher, making it harder for balance sheets to cushion severe recessions. FXStreet also noted he said greater absorption of government debt can come with increased fragility, and that fiscal policy commitments matter more during negative shocks.

On monetary policy, Bailey said it must stay focused on returning inflation to target, and described the current environment as volatile but not marked by illiquidity or stressed conditions. FXStreet reported he cited evidence that pass-through of energy costs into broader inflation is subdued, while warning that inflation risks rise if high energy prices persist longer.

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