Bank of England (BoE) Governor Andrew Bailey said on Wednesday, 1 April ’26, that markets were still getting ahead of themselves by pricing in interest rate hikes by the central bank. The objective is to avoid adding to the damage of Britain’s economy, which is distressed by the ongoing Middle East crisis.
Bailey, speaking exclusively to Reuters at the central bank’s London headquarters, was of the view that BoE policymakers may need to keep a clear focus on risks to growth and jobs as well as inflation when making their next rate decisions.
The war in the Middle East has driven up energy prices sharply. This has fuelled inflation, also dealing a wider blow to the global economy.
Bailey added that we may have to obviously act on monetary policy if we think it’s appropriate to do so. However, it strikes me and continues to strike me even today that the most important thing to do is to tackle the source of the shock.
Of course, he added that we may have to deal with the shocks that come our way. However, our remit is quite clear on this: we have to do so in a manner that causes the least damage in terms of activity in the economy, apart from in terms of the job market.
Bailey also highlighted the risks the Iran war posed to highly leveraged financial markets. This follows the central bank’s warning earlier in the day of fragility in private credit & bond markets.
Markets ‘getting ahead by themselves’
Financial markets are presently pricing in 2-rate hikes by the BoE during this year. They have previously priced as many as 4. This is whilst most economists polled by Reuters expect rates to remain on hold.
Bailey went on to add that the market’s still pricing us to increase rates. I would still say that is a judgement that markets may have to initiate. However, I also think that they may be getting ahead of themselves.
