Bank of England Governor Andrew Bailey noted that higher market borrowing costs are helping to tighten financial conditions naturally, reducing pressure for immediate additional policy action from the central bank. In testimony to lawmakers today, Bailey said the jump in market interest rates since the outbreak of the Iran war — particularly in mortgage costs — has already led to some tightening in the economy.
“I think this tightening gives us some time to evaluate,” Bailey said. The comments reinforce the dovish stance taken at the Monetary Policy Committee meeting in April, where the Bank of England voted 8-1 to leave interest rates unchanged while emphasizing that any future response will depend on how deep and sustained high energy costs spread through the economy.
Meanwhile, Bailey acknowledged there are signs that the UK economy is slowing, with growth and labor market conditions softening and wage settlements gradually easing. However, he warned that energy market prices currently look “fairly benign” compared to the actual disruption to gas infrastructure in the Middle East, suggesting that policymakers remain concerned that inflation risks could worsen again if the conflict escalates further.
