Bank of England's Bailey says wider effects of energy price rise look 'quite subdued' so far

Higher energy prices appear so far to be having limited wider effects on prices in Britain, but it is too soon for firm conclusions, Bank of England (BoE) Governor Andrew Bailey said, Reuters reported.

“I think it’s too early, but to the extent we’ve seen evidence, so far it’s been quite subdued,” Bailey told a meeting of the Institute of International Finance in Bangkok on Friday 16 October, on the sidelines of the IMF and World Bank annual meetings. He said businesses he spoke to had “a very big focus on cost-cutting and a very big focus on the difficulty of passing through” higher energy costs.

Bailey said Britain’s economy “is actually turning out to be more resilient than we expected it to be”. He called UK inflation of 3.1% in August “enormously frustrating” and attributed the overshoot of the BoE’s 2% target to conflicts in the Middle East, Reuters reported. He said those conflicts were also the main factor behind sharp moves in British government bonds, which pushed some yields to their highest since 1998 earlier this month.

Most economists now expect the BoE to begin raising rates next month, according to a Reuters poll. Bailey was part of a 6-3 majority on the Monetary Policy Committee that kept Bank Rate at 3.75% in September. Bailey has previously said higher mortgage rates and borrowing costs since the start of the US-Iran war gave the bank time to assess whether a rise was needed, while other BoE policymakers have said waiting for clear evidence of second-round effects risks acting too late, Reuters reported.