Key facts
- Bank of England Governor Andrew Bailey has stated that an interest rate cut is currently "off the table."
- Bailey indicated that borrowing costs are expected to remain elevated for the rest of the year.
- He attributed the shift in monetary policy outlook to inflationary pressures stemming from the war in the Middle East.
- Inflation in the UK is currently at 2.8%, exceeding the Bank's 2% target.
- The Bank of England's Monetary Policy Committee is scheduled to meet next on July 30.
Bank of England Governor Andrew Bailey has indicated that cutting interest rates is "off the table at the moment," suggesting that borrowing costs will likely remain high for the remainder of the year. Speaking at the European Central Bank's annual conference in Portugal, Bailey cited inflationary pressures, exacerbated by the war in the Middle East, as the primary reason for this shift in monetary policy outlook.
Bailey confirmed that the expectation of a rate cut this year, which was already off the table in March, remains so. He supported the Monetary Policy Committee's decision in June to hold interest rates steady at 3.75%. While acknowledging the encouraging fall in oil prices following a peace agreement between the US and Iran, he noted that prices have not yet returned to pre-war levels.
Inflation in the UK currently stands at 2.8%, significantly above the Bank's target of 2%. Bailey expressed the Bank's concern about inflation, stating they were "not happy" and "not complacent at all." He also highlighted the focus on the risk of energy price pass-through to indirect costs, such as food prices, and the potential for second-round effects that could embed inflation.
Earlier this week, Federal Reserve Chair Kevin Warsh commented on inflation risks in the US, noting a decrease but reaffirming commitment to price stability. In contrast, two Bank of England policymakers, Megan Greene and Huw Pill, had previously advocated for a rate hike, expressing concerns about households' sensitivity to inflationary shocks compared to 2022.
The Bank of England's Monetary Policy Committee is scheduled to convene next on July 30.