Bank of England Governor Andrew Bailey said there is currently little evidence that inflation has become embedded in UK price and wage-setting mechanisms.
Speaking at the International Financial Association’s annual meeting in Bangkok on Friday, Governor Bailey said the central bank is closely monitoring whether firms and workers are pushing up prices and wages to offset their own rising costs, which could trigger a second wave of inflation.
Bailey said, “Based on the evidence we have so far, the pandemic impact appears quite mild. It’s too early to draw conclusions.”
Inflation has already surpassed the Bank of England’s 2% target, reaching 3.1%, and is expected to rise to 4% over the coming months. The central bank itself has indicated this level would warrant a policy response.
The committee’s divisions on policy have deepened, with last month’s vote extremely close—ending in a 6-3 decision to keep interest rates unchanged.
Two fellow committee members—external member Megan Greene and chief economist Huw Pill—had warned against waiting for further inflation signals. Both voted in favor of a rate hike, citing concerns about potential second-round effects and the need for swift action.
Bailey argued that such a policy would be restrictive, as the Bank had originally planned to cut interest rates this year before the outbreak of conflict in Iran in February. Speaking at the IIF event on Friday, he noted that “market expectations were for several rate cuts, which I thought was quite reasonable.”
He made these remarks after the International Monetary Fund raised its growth forecast for the UK this year from 1% to 1.3%. Official UK GDP data released this week showed stronger-than-expected economic growth, with GDP expanding by 0.7% in the three months to August.
Bailey said the UK economy is showing “more resilience than we anticipated.”
