Bank of England Can Tolerate Inflation Above 2% Target, Says Bailey
Bailey said the central bank can look through a temporary inflation overshoot if wage and price pressures do not spread.
- On Friday, Bank of England Governor Andrew Bailey said allowing inflation to remain above the central bank's 2% target is "appropriate" to support Britain's weak economy amid uncertainty regarding the Iran conflict.
- The war in Iran has left Britain exposed to a second cost-of-living crisis in less than five years, as the country relies heavily on energy imports, which Bailey said will push up inflation and weigh on activity.
- Bailey warned that reacting too early to inflation concerns "may generate undesirable volatility," noting that tolerance for above-target inflation would weaken if signs of second-round price effects emerge.
- During their April meeting, policymakers kept interest rates at 3.75%, though financial markets are pricing in one quarter-point rate hike and a roughly one-in-three chance of a second increase over the remainder of 2026.
- Still, Bailey warned of persistent price pressures, citing the "legacy of four years ago," when inflation soared into double-digits following Russia's invasion of Ukraine, as a factor requiring consideration.
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Given the context of fragility in the real economy and uncertainty about the magnitude and duration of the shock, temporarily tolerating inflation above the target to provide some support for the real economy is an appropriate way to address this issue, said the president of the monetary authority
Bank of England May Tolerate Inflation to Support UK Economy, Bailey Says
The Bank of England could tolerate inflation temporarily staying above its 2% target in order to support the UK’s weak economy, Governor Andrew Bailey said — so long as second-round price effects do not emerge.
Bailey Pushes Back Against Rate Hike Expectations as BoE Waits for More Evidence - ActionForex
Bank of England Governor Andrew Bailey delivered a clear message to markets on Friday: rising inflation does not automatically mean higher interest rates. While acknowledging that the energy shock from the Middle East conflict is likely to push inflation above target, Bailey indicated that there is no urgency for the BoE to respond with immediate […] The post Bailey Pushes Back Against Rate Hike Expectations as BoE Waits for More Evidence appear…
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