LONDON, June 2 - Bank of England Governor Andrew Bailey told peers on Tuesday that the central bank must re-establish confidence that the 2% inflation target is credible and achievable. Bailey said it was important not only to return inflation to target but to give households assurance that the Bank can deliver on that aim.
Addressing the House of Lords’ Economic Affairs Committee at his annual appearance, Bailey was asked whether a period of inflation above 2% through much of the 2020s required a rethink of the Bank’s price-targeting framework. He replied that the emphasis should be on the process for returning inflation to target.
"We have to focus more on how we manage the path back to target, and ... ultimately get there because we’ve got to give the public confidence that the target is for real."
Bailey made clear that missing the 2% target did not, in his view, justify moving the target point higher. He said explicitly that the answer to persistent target misses was not to raise the inflation target to 3%.
On policy decisions, Bailey noted his April vote to keep Bank Rate unchanged at 3.75%. That decision was part of an 8-1 majority among Monetary Policy Committee members. He also referenced recent comments in which he said higher market interest rates had given the Bank of England breathing space to determine whether further rate rises would be needed in response to what he described as an inflation shock tied to the Iran war.
The governor’s remarks stressed two linked priorities: returning inflation to the 2% objective and ensuring the public believes the target is a binding commitment. He framed the challenge as one of managing the path back to the target rather than altering the target itself.
By highlighting the role of market interest rates in shaping the Bank’s timeline for decisions, Bailey signalled that the prevailing conditions in financial markets will influence the speed and scale of any future policy moves. He did not provide new guidance on the timing of potential rate changes, reiterating only that the Bank had more time to assess its response given recent market developments.
Contextual notes: Bailey was speaking at his annual hearing before the House of Lords’ Economic Affairs Committee. His comments reiterated the Bank’s stated goal to return inflation to 2% and defended the current target amid a period of above-target inflation.