Bailey Downplays Inflation Risks as UK Markets Expect Rate Hike

Bank of England Governor Andrew Bailey expressed optimism about the UK's inflation outlook, stating that he sees 'subdued' second-round effects from energy price surges. The surge in energy prices was caused by the U.S.-Iran conflict, but Bailey believes it has not created serious longer-term inflation pressures in Britain.

One factor restraining inflation, according to Bailey, is a soft labor market, which limits workers' ability to bargain for higher pay. He also emphasized that he could make no promises about how the economy would develop in future.

Bailey was part of the 6-3 majority on the BoE's Monetary Policy Committee who voted to keep interest rates at 3.75% in July. Financial markets currently price in one quarter-point rate hike by the BoE before the end of the year, which Bailey described as reflecting market worries about an escalation of the U.S.-Iran war rather than the most likely path for BoE policy.