Bank of England's Bailey says second-round inflation pressures look subdued so far

Bank of England Governor Andrew Bailey told a gathering of the Institute of International Finance in Bangkok on Friday that higher energy prices have so far had only a limited knock-on effect on British prices. He cautioned that it is premature to judge how far these secondary effects will go. Business Recorder added that a Reuters poll found most economists anticipate a BoE rate increase next month, after policy had been kept steady since February's outbreak of the US-Iran conflict.

Last month he backed the 6-3 Monetary Policy Committee majority that kept rates at 3.75%, but had warned that tightening could follow if second-round risks rose. He described businesses concentrating on trimming costs and struggling to pass higher energy bills onto customers. He noted that borrowing costs, including mortgage rates, have climbed steeply since the conflict began, giving policymakers room to weigh a rate increase.

Bailey described the economy as more resilient than expected, with August GDP figures released on Thursday showing annual expansion at its fastest since October 2022. He called the 3.1% reading for August enormously frustrating and attributed the gap above the 2% goal to Middle East conflicts. Those conflicts also drove sharp moves in government bonds, with some yields last week reaching their highest since 1998.