London Daily

Focus on the big picture.
Wednesday, Sep 02, 2026

Cost of living: Bank of England governor warns sharper rate hike is 'not locked in' as economy slows

Cost of living: Bank of England governor warns sharper rate hike is 'not locked in' as economy slows

Andrew Bailey uses a speech to the City to warn that market expectations of a 50 basis point hike in Bank rate next month is not guaranteed while the new chancellor outlines plans to boost the financial sector's global competitiveness.

The governor of the Bank of England has warned that the prospect of a sharper increase in Bank rate next month is "not locked in" amid growing evidence of an easing in economic growth and in some inflationary pressures.

Andrew Bailey told the City of London's annual Mansion House dinner that while the prospect of a 50 basis points rise in Bank rate will be on the table next month, the monetary policy committee recognised there was a trade off in a situation of high inflation and low growth.

Rising interest rates tend to hurt demand as borrowing costs rise but much of the inflation witnessed in the UK is on the supply side and out of the Bank's control - a consequence of the energy price spike following Russia's invasion of Ukraine.

Policymakers are most worried by supply side inflation stoking wage rises in line with the pace of price increases, arguing it will make the inflation problem more persistent.

Mr Bailey argued that there was strong evidence of a weakening economy and that May's figures for economic growth - showing a 0.5% lift compared to April - should be treated with caution against a weakening backdrop in demand.

He was speaking as the Bank is urged to take firmer action against the threat to the economy posed by inflation - currently at its highest level for 40 years at 9.1%.

Mr Bailey spoke out in defence of the Bank's independence this month following criticism from politicians - including Tory leadership candidate Liz Truss - that it has bungled efforts to date to tame the pace of price increases.

The governor used his speech to reiterate that monetary policy would bring inflation back to the Bank's 2% target.


Financial markets currently see a 94% chance that the Bank will raise Bank rate to 1.75% from its current level of 1.25% on 4 August.

But Mr Bailey said: "At the MPC's last meeting we adopted language which made clear that if we see signs of greater persistence of inflation, and price and wage setting would be such signs, we will have to act forcefully.

"In simple terms this means that a 50 basis point increase will be among the choices on the table when we next meet.

"50 basis points is not locked in, and anyone who predicts that is doing so based on their own view."

The Bank, which has predicted that inflation will hit 11% in October when the next energy price cap increase is due to be implemented, could also raise that forecast at its next meeting which is followed by the quarterly monetary policy report.

Mr Bailey said on the current situation for inflation: "The big external shocks - from Russia and supply chains (post-COVID) - account both for a large part of the inflation overshoot above target and for the squeeze on real incomes.

"My sense of the latest data is that the supply chain/goods shock has started to ease, but the Russian impact - particularly on natural gas prices in Europe is going the other way as we look ahead to the winter."

Chancellor Nadhim Zahawi also addressed the dinner.

He confirmed a focus on fighting inflation and a post-Brexit reworking of financial regulation inherited from the European Union, including Solvency II insurance rules.

He told the Mansion House audience that regulators will have to promote the global competitiveness of Britain's financial sector or face mandatory reviews of their rules.

The chancellor confirmed that the long-awaited financial services and markets bill would be introduced before parliament on Wednesday to "capitalise on the benefits of Brexit and transform the UK financial services sector".

Mr Zahawi said the bill, which includes cutting "excessive" capital buffers at insurers to invest in infrastructure, will
unlock "tens of billions of pounds", a step which pits it against a more cautious Bank of England.

The bill also cracks down on financial scams including push payment fraud.

Newsletter

Related Articles

0:00
0:00
Close
UK Business Confidence Improves but Remains Deeply Negative
Aberdeen Hydrogen Bus Sale Recovers Just Six Pence for Every Pound Invested
Which? Exposes Booking.com Verification Failures With Fake 10 Downing Street Listing
British Business Bank Invests Up to £46 Million in Deep-Tech Startup Fund
Scottish Government Puts Violence Against Women at Center of Legislative Program
FCA Eases UK IPO Rules to Strengthen London’s Listing Market
UK Likely to Avoid Next US Tariff Measures as Washington Targets EU
Macron Visits UK for Bayeux Tapestry Exhibition and Border Security Talks
British Chambers of Commerce Cuts UK Growth Outlook to 1% for 2026 and 2027
Keir Starmer Resigns as MP for Holborn and St Pancras, Triggering By-Election
Prime Minister Andy Burnham Unveils Devolution and Cost-of-Living Agenda
UK Borrowing Costs Surge as 30-Year Gilt Yield Reaches 5.88%
Cleveland Police Receive £2 Million to Tackle Serious Crime in Middlesbrough
Number of Young People in England Without a Close Friend Reaches Record Level
Five Arrested After Newborn Baby Dies From Stab Wounds in Sheffield
Nigel Farage Faces Questions Over Reported Second Parliamentary Standards Investigation
UK Retirement Funding Requirement Rises by £64,000 Compared With 2021
UK House Prices Rise for First Time Since April, Nationwide Says
FCA Chief Faces Allegations of Intimidating Consumer Group Over £9 Billion Car Loan Inquiry
Scottish Government Presses Ahead With Cap on Essential Food Prices
Burnham Government Moves to Overhaul Early Prison Release Scheme
UK Records Hottest Summer on Record in 2026, Met Office Says
UK Government Announces Major Reset of Diplomatic Policy Towards Israel
UK Pushes Back After Trump Reopens Falkland Islands Sovereignty Dispute
Keir Starmer Resigns as MP, Triggering Holborn and St Pancras By-Election
Andy Burnham Blames Brexit for UK’s Decade of Weak Growth in First Commons Address
England Faces Renewed Scrutiny Over Sewage Discharges and Water Quality
Victoria Beckham Business Reports First Operating Profit Since Launch
BT Expects £2 Billion From Copper Sales During Full-Fibre Rollout
UK Train Drivers Secure 3.6% Pay Rise and Avert Strike Action
FCA Chief Faces Scrutiny Over Alleged Pressure on Consumer Group in Car Finance Case
Kemi Badenoch Names Andrew Griffith Shadow Chancellor in Conservative Reshuffle
UK House Prices Rise for First Time Since April
UK Shop-Price Inflation Accelerates to 1.5% in August
Met Office Data Point to Hottest UK Summer on Record
UK Announces Emergency Prison Release Measures and £110 Million Capacity Expansion
UK Launches Expanded Free School Meals and 1,400 Breakfast Clubs
Bank of England Governor Warns G20 of AI-Related Economic and Cyber Risks
Prime Minister Andy Burnham Calls for Greater Public Control of Water, Energy and Transport
UK Gains Full Access to £13 Trillion Trans-Pacific Trade Bloc
UK Long-Term Borrowing Costs Hit 28-Year High as Oil Shock Drives Global Bond Selloff
Royal Mail Keeps First-Class Stamps at £1.80 and Second-Class at 91p
Church of England Prepares Formal Apology Over Historical Forced Adoptions
UK Competition Regulator Caps Veterinary Prescription Fees at £21
UK Aviation Authorities Roll Out Airspace Changes to Reduce Flight Delays
England Makes School Allergy Policies Mandatory Under Benedict’s Law
England and Wales Tighten Child Safeguarding Checks by Removing Supervision Exemption
Cornwall Geothermal Plant Begins Commercial Power and Lithium Operations
UK Inflation Holds Near 2.9% as Energy Costs Remain a Risk
UK Productivity Growth Averages 1.1% Over Two Years, Resolution Foundation Says
×