BoE Cautious on Energy Price Risks as Interest Rates Remain Unchanged

Bank of England Governor Andrew Bailey maintained a cautious tone at a press conference after the central bank left interest rates unchanged. He acknowledged that policymakers are monitoring the risk of second-round effects from recent energy price increases, but stressed there is currently little evidence such dynamics are taking hold.

Bailey noted that economic activity remains subdued and the labor market is softening, helping to contain inflationary pressures. Domestic inflation is slowing, while weak demand limits businesses' ability to pass higher costs on to consumers.

The governor emphasized that growing spare capacity in the labor market will reduce workers' bargaining power, moderating wage growth over time. While Bailey acknowledged some upside risks, he stressed that a prolonged Middle East conflict and evidence of energy-driven inflation feeding into wages and prices could eventually require tighter monetary policy.