Bailey said the Bank of England was taking into account the IMF’s “serious advice”.
Before the US-Israeli attacks on Iran six weeks ago, the Bank of England was widely expected to lower rates over the course of this year. However the threat of higher prices, due to rising energy costs, has prompted speculation rates will be held steady or even rise this year.
When inflation runs higher central banks usually raise interest rates to choke off demand. But when economic activity slows they will lower interest rates to encourage borrowing and spending.
The impact of higher energy prices could be both to boost prices and knock growth, making the Bank’s job harder.
“There’s really difficult judgments to be made,” said Bailey. “We’re not going to rush to judgments on those things, because there are a lot of uncertainties around this, not just how it’s going to play out, but also how it’s going to pass through into the UK economy.”
Before the conflict there had been signs that the labour market was softening and that businesses were finding it harder to pass on price rises to customers, Bailey said, factors suggesting that inflation is less likely to become a persistent problem.
However, the Bank was still waiting for any “meaningful data” or evidence on how the conflict was feeding through to the UK economy, or how it was going to affect prices or activity, Bailey said.
“It’s really too early to form strong judgments on that,” he said.
The UK’s “strong dependency on gas” as a source of energy meant there would be a significant impact, but” the real determinant here is the duration of [the conflict],” he said.
“The faster there is a resolution to this situation – I particularly mean in terms of the supply of energy coming out of the out of the Gulf – the easier and better the outcome will be. And that’s really critical at this moment,” he added.
