LONDON, May 20 - Bank of England Governor Andrew Bailey said on Wednesday that upward moves in market interest rates since the start of the Iran war have afforded the central bank additional time to calibrate its response to the economic consequences of the conflict.
Addressing parliament’s Treasury Committee, Bailey cited rising mortgage borrowing costs as an example of how investors have shifted their stance since the conflict began. He said that shift - which has produced a tightening in financial conditions - provides the Bank with some breathing room to evaluate the scale and nature of the shock.
"That tightening, I think also gives us ... some time to assess," Bailey told lawmakers.
Bailey was among the majority on the Bank of England’s Monetary Policy Committee that voted 8-1 to keep the central bank’s benchmark interest rate unchanged at its April meeting. At that session, the MPC said its reaction to the energy shock produced by the war would be determined by the shock’s scale and duration and by the channels through which it spread across the economy.
In his testimony, Bailey said the outlook for economic growth and the labour market had softened, and he observed that wage settlements were reducing gradually. At the same time, he characterised market pricing for energy as "fairly benign" when weighed against the damage inflicted on gas infrastructure in the Middle East.
The remarks sketch a cautious stance: the Bank recognises the direct pressures on energy markets and the indirect transmission to domestic borrowing costs, but is also taking into account recent tightening in financial conditions that has emerged since the conflict began. The MPC’s April vote to pause on further rate moves reflected that assessment, with the committee reserving judgment on future action pending clearer evidence on how the energy shock unfolds.
Contextual note: The Bank’s posture ties its near-term decisions to observable developments in energy markets and the real economy. The central bank is monitoring growth, labour market indicators and wage dynamics while also taking account of market-driven increases in borrowing costs.
Implications for markets and sectors include higher mortgage borrowing costs affecting households and lenders, energy market developments influencing inflationary pressures, and softer growth and wage settlements bearing on consumer demand and credit quality.