Andrew Bailey has warned that the global economy is facing a \u201cvery big energy shock\u201d that will lead to a rise in inflation, but said policymakers would not rush into raising interest rates in response.<\/p>\n
The Bank of England governor told the BBC that there were \u201cdifficult judgments to be made\u201d about the UK economy as the war in Iran raises the prospect of higher energy prices.<\/p>\n
Bailey\u2019s comments come as members of the monetary policy committee (MPC) weigh up whether to take action on interest rates at their next meeting on April 30.<\/p>\n
Speaking at the International Monetary Fund (IMF) spring meeting in Washington DC, he said: \u201cThere are really difficult judgments to be made. We\u2019re not going to rush to judgments on those things, because there are a lot of uncertainties around this, not just how it\u2019s going to play out, but also how it\u2019s going to pass through into the UK economy.\u201d<\/p>\n
The MPC will meet to examine the likely impact of the Iran war after the IMF warned that the UK economy would be one of the hardest hit<\/a> by the conflict. <\/p>\n In its latest economic outlook, the IMF said a surge in energy prices since the start of the conflict would lift inflation to double the Bank of England\u2019s target, in part because the UK relies heavily on gas imports. <\/p>\n UK economic growth this year is predicted to be 0.8 per cent, 0.5 percentage points lower than the fund\u2019s January prediction of 1.3 per cent and the largest downgrade for any G7 nation.<\/p>\n Bank of England policymakers were criticised by economists and MPs for being too slow to respond to signs of rising inflation after the coronavirus pandemic. <\/p>\n In September 2021, with inflation at 3.2 per cent and expected to reach 4 per cent, Bailey played down expectations of an interest rate rise, saying there were \u201csubstantial uncertainties\u201d in the economy. The Bank kept interest rates at 0.1 per cent for most of that year as it tried to support the recovery from lockdown.\u00a0<\/p>\n