Bank of England Governor Says Too Early to Make Call on Second-Round Inflation
By Fabiana Negrin Ochoa
The U.K. has felt the first round of inflationary impact from war in the Middle East in higher energy prices. The question for the Bank of England is whether that is passing through into broader price growth, Gov. Andrew Bailey said Friday.
Inflation in the U.K. is above the central bank's target but it is too early to tell if that is spilling over into indirect and second-round effects, Bailey said.
"To the extent we have seen evidence, it's quite subdued," he said at the Institute of International Finance's annual membership meeting in Bangkok.
Before the war broke out in late February, inflation was on track to reach the BOE's target late spring, Bailey said. "It's enormously frustrating."
Preconflict, markets had been pricing in a couple of rate cuts by the BOE, which Bailey said seemed "pretty reasonable."
That came off the table in March.
"So we have effectively tightened policy. We haven't raised the official rate, but we've effectively tightened policy relative to where it was expected to be," the governor said.
That has been reflected in U.K. mortgage rates, which are among the top end of Group of Seven economies in terms of increases, he said.
Though he cautioned against prematurely forming strong views on second-round inflation, Bailey said he isn't taking the impact for granted.
Discussions with companies around the country showed a "very big focus on cost-cutting," he said. "That's the inflation story at the moment. That's the judgment we have to keep making at every meeting: what are we going to see in terms of...the pass-through."
On the positive side, the economy has turned out to be more resilient than expected, Bailey said.
"But it's not as strong a growth as we need and as we've had in the past," he added.
The remarks came ahead of the central bank's next meeting in early November, shedding some light into what Bailey described as the building blocks of its thinking on rates.
To anyone thinking they have worked out what the BOE is going to do from those comments, however, Bailey had a clear message: "You haven't."
Write to Fabiana Negrin Ochoa at fabiana.negrinochoa@wsj.com
(END) Dow Jones Newswires
October 16, 2026 02:51 ET (06:51 GMT)
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