Bank of England (BoE) Governor Andrew Bailey Said during the European trading session on Friday that the central bank should monitor the situation in the Middle East and how it has been affecting the United Kingdom (UK) economy and inflation very closely and adjust policy as required.
Additional remarks
Having taken expected cuts off the table for now, we have already tightened policy considerably in response to the shock relative to what had been expected by markets.
That is already affecting the economy.
Softness in economy and uncertainty around Iran war shock means tolerating temporarily above target inflation is an appropriate way to approach the policy trade-off.
But that tolerance would weaken if signs of second-round effects begin to emerge.
Higher inflation expectations are not coming through in wage expectations and settlements.
Hopes fall in UK bond market curve will go on but depends on events in Middle East.
Market reaction
There has been a slight selling pressure in the British Pound (GBP) after BoE Bailey’s comments. However, GBP/USD was already underperforming, trading 0.23% lower to near 1.3415.
