London Daily

Focus on the big picture.
Saturday, Jul 11, 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
Scottish Fishing Industry Calls for Emergency Support Amid Rising Costs
UK Supports Stronger European Response to Russian Actions in Ukraine
Devon and Cornwall Police Release Suspect in Ann Widdecombe Murder Investigation
Scottish MPs Demand More Government Support for Fishing Industry
UK Aviation Sector Faces New Rules as Parliament Reviews Passenger Protection Reforms
King’s College London Disciplines Students Over Pro-Palestine Campus Protests
Ministry of Defence Expands Military Capabilities Through New Precision Strike Investment
United Kingdom Condemns Russian Treatment of Ukrainian Children at International Security Forum
House of Lords Reviews Civil Aviation Bill to Strengthen Passenger Rights and UK Aviation Competitiveness
UK Aerospace and Defence Industries Contribute Nearly Forty-Seven Billion Pounds to Economy
UK Government Advances Consultation on Possible Social Media Ban for Children Under Sixteen
United Kingdom Ratifies Global High Seas Treaty to Protect Marine Biodiversity
United Kingdom Joins United States Precision Strike Missile Programme With One Hundred Ninety Million Pound Investment
UK Senior NHS Doctors Vote for Further Strike Action Over Pay and Contract Disputes
BBC Leadership Resigns After Donald Trump Launches Ten Billion Dollar Defamation Lawsuit
UK Fiscal Watchdog Warns Andy Burnham Government Faces One Hundred Billion Pound Budget Challenge
The AI Invoice Shock: Layoffs Didn't Save Managers Money — They Cost Them More
Concern: Sexually Transmitted Bacterium Among Men Develops Antibiotic Resistance
Following Massive Investor Demand: SK Hynix Raises 26.5 Billion Dollars on Nasdaq
Passenger Partially Pulled Out of Ryanair Jet After Cabin Window Fails Mid-Flight
After Four Years, and Under a Heavy Veil of Secrecy: King Charles Meets His Grandchildren, Harry and Meghan's Children
Cross-Party MPs Call for National Climate Emergency Broadcast
Bayeux Tapestry Arrives in the United Kingdom for Landmark Exhibition
United Kingdom Launches Modern Slavery Prevention Programme in Vietnam
Police Warn Against Misinformation Following Disorder in Glasgow
Pension Reform Takes Effect to Consolidate Workplace Savings Industry
Treasury and Bank of England Monitor Economy as Energy Price Pressures Ease
Government Orders Treasury Reform of Disciplinary Procedures Following Civil Servant's Death
Ofcom to Require Major Technology Platforms to Block Scam Advertisements
Labour Apologizes Over Gaza Position in Bid to Rebuild Support
High Court Rules UK-France Asylum Agreement Protection Cuts Were Unlawful
Metropolitan Police Open Murder Investigation Into Death of Former MP Ann Widdecombe
University College London Report Proposes Replacing Council Tax and Stamp Duty With National Property Tax
Treasury Places Amazon, Google, Microsoft and Oracle Under New UK Financial System Oversight Rules
Severe Heatwave Drives Dangerous Ground-Level Ozone Pollution Across Two Thirds of European Union
Westminster in Freefall as Farage's By-Election Gamble Triggers Broader Systemic Crises
Institutional Fractures and Political Volatility Reshape Britain's Domestic Landscape
Deadly Fire, Health Emergencies and Political Upheaval Shape a Volatile Global News Cycle
UK Energy Strategy Focuses on Storage and Offshore Wind to Support Renewable Transition
Regional Governments Gain Greater Role in Britain’s Infrastructure and Economic Strategy
Britain Strengthens Technology Sovereignty Through Tougher Artificial Intelligence Competition Rules
UK Government Expands Artificial Intelligence Use Across Public Services Despite Privacy Debate
UK Universities Warn of Financial Pressure After Sharp Fall in International Student Enrolment
Welsh Government Completes Rail Nationalisation With One Point Five Billion Pound Modernisation Plan
Northern Ireland Records Export Growth as Companies Benefit From Dual UK and EU Market Access
Greater Manchester Launches Two Billion Pound Plan to Convert Empty Commercial Sites Into Housing
National Grid Connects Europe’s Largest Battery Storage Facility in Yorkshire
UK Defence Ministry Plans Royal Navy Autonomous Fleet Deployment to Indo-Pacific
Scotland Approves Europe’s Largest Floating Offshore Wind Project Near Aberdeen
Competition and Markets Authority Blocks Forty Billion Pound Technology Deal Over AI Security Concerns
×