Bank of England Governor Andrew Bailey said on Wednesday that a rise in market interest rates since the start of the Iran war has given the central bank more time to assess the economic impact of the conflict.
Testifying to parliament's Treasury Committee, Bailey noted higher mortgage borrowing costs as an example of how investors have shifted since the conflict began. "That tightening, I think also gives us ... some time to assess," he said.
Unlike the European Central Bank, which has signalled a possible rate rise as soon as next month, the BoE had been expected by investors to cut rates this year before the closure of the Strait of Hormuz upended the inflation outlook.
The BoE's Monetary Policy Committee voted 8-1 to hold rates in late April, stating its response to the energy shock would depend on its scale, duration and how it feeds through the economy.
Bailey said the outlook for economic growth and the labour market had softened, with wage settlements easing gradually. He described market pricing for energy as "fairly benign" given damage to Middle East gas infrastructure, suggesting investors may be underestimating inflation risks.
Other MPC members struck differing tones. Swati Dhingra said the BoE might not need to raise rates if higher energy prices have only moderate second-round effects. Catherine Mann warned that high inflation could become embedded in wage deals for 2027.
