Bank of England’s Bailey says no rush to raise interest rates amid Iran war uncertainty

The Bank of England is in no rush to raise interest rates while the outcome of the Iran war remains uncertain and the UK’s growth rate stays weak, the governor, Andrew Bailey, said. In a signal that borrowing costs will remain at 3.75% at least during the summer, Bailey said it was tolerable for inflation to stay above the Bank’s 2% target during the current crisis. However, that would change if a more permanent increase in prices began to take effect. “Given the context of softness in the real economy and uncertainty around the scale and duration of the shock, tolerating temporarily above-target inflation to provide some support for the real economy is an appropriate way to approach the trade-off [between inflation and activity]. “But that tolerance would weaken if signs of second-round effects begin to emerge,” he said. At the start of the year financial markets had expected the Bank to cut interest rates twice this year to 3.25%. Since the Iran war began, the situation has reversed, and now a rise of 0.25 percentage points to 4% before December is forecast. Andrew Bailey says: ‘We have to monitor the situation in the Middle East and how it affects the UK economy and inflation very closely and adjust policy as required.’ Photograph: Hannah McKay/Reuters Speaking at a conference in Reykjavik organised by Iceland’s central bank, the governor said the economic situation had deteriorated since the start of the bombing of Iran by the US and Israel. …