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2026-05-29 18:10:05
[Bank of England Governor Bailey: Allowing Inflation to Temporarily Exceed Target Amid Iran War, No Need to Rush to Raise Rates] ⑴ Bank of England Governor Bailey said on Friday that it is reasonable to allow inflation to run above the 2% target, given the uncertainty surrounding the economic impact of the Iran war and weak growth. However, this tolerance will lessen if signs of a second round of effects (referring to long-term inflationary pressures) begin to emerge. ⑵ Bailey reiterated that the Bank of England has tightened monetary policy by removing the option of interest rate cuts from the table, which has already impacted the economy. He stated that it is necessary to closely monitor the impact of the Middle East situation on the UK economy and inflation and adjust policy as needed. ⑶ The market has now fully priced in a 25 basis point rate hike in 2026 (in November), with only a one-in-three probability of a second rate hike. In March, investors had priced in more than three rate hikes. Bailey welcomed this, saying he hopes this situation will continue, but it will depend on developments in the Middle East.
