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Bank of England governor warns ceasefire would create uncertainty, not rate cuts

Bank of England governor warns ceasefire would create uncertainty, not rate cuts

Andrew Bailey says a 60-day pause in the US-Israel conflict with Iran won't resolve the energy shock driving UK inflation higher.

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by Editorial Team

Andrew Bailey wants to be very clear: a ceasefire is not a cure-all. The Bank of England governor told the Financial Times that a proposed 60-day ceasefire in the US-Israel conflict with Iran would still leave significant uncertainty hanging over the UK economy, and that anyone expecting immediate interest rate cuts should temper their expectations.

The Bank held its Bank Rate steady at 3.75% on April 30, with an 8-1 vote. The lone dissenter didn’t want a cut. They wanted a hike.

A ceasefire that didn’t calm anything

A conditional US-Iran ceasefire was announced around April 7-8, and for a brief moment, oil prices dipped. Markets exhaled. Then they inhaled again, sharply. Brent crude climbed back to its highest levels since the ceasefire was announced, as traders concluded that a temporary pause in hostilities doesn’t actually guarantee stable energy supplies.

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Bailey described the situation in blunt terms. The conflict has created what amounts to a “major supply shock” in energy markets.

A ceasefire “might help, but it does not completely resolve the issue,” Bailey said.

Why the Bank of England is stuck

Bailey indicated that the Bank is preparing for multiple scenarios. Rate cuts would only come on the table once inflationary pressures from the energy shock begin to fade.

The fact that one Monetary Policy Committee member voted for a rate hike at the April 30 meeting is notable. It signals that at least some policymakers believe the inflation risk is severe enough to warrant tighter policy, even at the expense of growth. The 8-1 vote to hold suggests the majority isn’t ready to go that far, but the door clearly isn’t closed.

What this means for investors and the broader market

The most immediate takeaway is that rate cuts in the UK are off the table for the foreseeable future. The 3.75% rate is likely to persist until there’s clear evidence that energy-driven inflation is retreating, and a shaky ceasefire doesn’t provide that evidence.

Bailey’s message, stripped of the diplomatic packaging, is simple: don’t mistake a pause for a resolution. The uncertainty isn’t going away with a handshake and a countdown timer. Until the underlying conflict reaches a durable settlement, UK monetary policy will remain hostage to events in the Middle East.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
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Bank of England governor warns ceasefire would create uncertainty, not rate cuts

Bank of England governor warns ceasefire would create uncertainty, not rate cuts

Andrew Bailey says a 60-day pause in the US-Israel conflict with Iran won't resolve the energy shock driving UK inflation higher.

by Editorial Team

Share

Add us on Google

Andrew Bailey wants to be very clear: a ceasefire is not a cure-all. The Bank of England governor told the Financial Times that a proposed 60-day ceasefire in the US-Israel conflict with Iran would still leave significant uncertainty hanging over the UK economy, and that anyone expecting immediate interest rate cuts should temper their expectations.

The Bank held its Bank Rate steady at 3.75% on April 30, with an 8-1 vote. The lone dissenter didn’t want a cut. They wanted a hike.

A ceasefire that didn’t calm anything

A conditional US-Iran ceasefire was announced around April 7-8, and for a brief moment, oil prices dipped. Markets exhaled. Then they inhaled again, sharply. Brent crude climbed back to its highest levels since the ceasefire was announced, as traders concluded that a temporary pause in hostilities doesn’t actually guarantee stable energy supplies.

Advertisement

Bailey described the situation in blunt terms. The conflict has created what amounts to a “major supply shock” in energy markets.

A ceasefire “might help, but it does not completely resolve the issue,” Bailey said.

Why the Bank of England is stuck

Bailey indicated that the Bank is preparing for multiple scenarios. Rate cuts would only come on the table once inflationary pressures from the energy shock begin to fade.

The fact that one Monetary Policy Committee member voted for a rate hike at the April 30 meeting is notable. It signals that at least some policymakers believe the inflation risk is severe enough to warrant tighter policy, even at the expense of growth. The 8-1 vote to hold suggests the majority isn’t ready to go that far, but the door clearly isn’t closed.

What this means for investors and the broader market

The most immediate takeaway is that rate cuts in the UK are off the table for the foreseeable future. The 3.75% rate is likely to persist until there’s clear evidence that energy-driven inflation is retreating, and a shaky ceasefire doesn’t provide that evidence.

Bailey’s message, stripped of the diplomatic packaging, is simple: don’t mistake a pause for a resolution. The uncertainty isn’t going away with a handshake and a countdown timer. Until the underlying conflict reaches a durable settlement, UK monetary policy will remain hostage to events in the Middle East.

Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.