The Bank of England (BoE) is holding back on interest rate hikes amid the Iran war and weak economic growth. Governor Andrew Bailey said there is no reason to rush into raising borrowing costs. The key interest rate is expected to remain at 3.75 percent through the summer, the Guardian reports.
Speaking at a conference of the Icelandic central bank in Reykjavik, Bailey said the economic situation has deteriorated since the US and Israel began bombing Iran. The central bank must closely monitor developments in the Middle East and their impact on the British economy and inflation, adjusting monetary policy as needed.
Temporarily allowing inflation to exceed the 2 percent target is acceptable given the weakness of the real economy and uncertainty over the scale and duration of the shock, Bailey said. This is intended to support the economy. However, this tolerance would wane if signs of longer-term price increases emerge.
At the start of the year, financial markets had expected two rate cuts to 3.25 percent. Since the Iran war began, expectations have reversed: a 0.25 percentage point increase to 4 percent is now forecast before December.
Source: www.theguardian.com
