London Daily

Focus on the big picture.
Friday, Jun 26, 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
Robert Jenrick Defends £5 Million Donation to Nigel Farage Amid Political Scrutiny
Plymouth Museum The Box Wins 2026 Art Fund Museum of the Year Award
UK Government Faces Backlash Over Plans to Use Former Military Sites for Asylum Accommodation
Labour Party Faces Pressure Over Cabinet Stability as Senior Figures Clash on Policy Direction
Heathrow Airport Forecasts Passenger Decline in 2026 as Costs and Climate Disruption Mount
UK Energy Regulator Approves Expansion of Long-Duration Storage to Boost Power System Resilience
Crown Estate Reports Third Consecutive Year of £1 Billion Profit as Debate Over Royal Finances Intensifies
Teenager Charged With Murder in Wales Following Death of 14-Year-Old Boy
Nottingham University Hospitals Maternity Failures Trigger Calls for Public Inquiry Into Patient Safety
EasyJet Rejects £4.9 Billion Takeover Offer From Castlelake but Keeps Door Open for Further Talks
Record Heatwave Triggers UK Transport and Infrastructure Strain as Heathrow Revises Passenger Forecast Downward
Ofgem Approves Sixteen Long-Duration Energy Storage Projects to Strengthen UK Grid Stability
Labour Government Faces Internal Tensions Over Cabinet Decisions and Net Zero Policy Direction
British Food and Drink Exports Fall to Decade Low Amid Trade Friction and US Tariffs
Great Britain Grid Operator Spends £10 Million to Stabilize Electricity Supply During Heatwave Demand Surge
UK Parliament Committee Calls for Urgent National Adaptation Strategy as Extreme Heat Strains Public Infrastructure
Record-Breaking Heatwave Pushes England’s National Health Service to Critical Incident Status as Hospitals Struggle With Surge in Emergencies
UK Government Launches Review of Voluntary National Insurance Contributions System
UK Planning Inspectorate Reports Key Infrastructure and Planning Milestones in Annual Review
UK Government Reviews Travel Expense Reimbursement Rates for Employers and Employees
Civil Nuclear Constabulary Launches National Digital Memorial for Officers Killed in Service
UK and US Expand Collaboration on Nuclear Fusion Research and Workforce Exchange
Environment Agency Secures £275,000 Enforcement Deal with Anglian Water Over Permit Breaches
Independent Inspector Flags Ongoing Failures in UK Home Office Border Case Management
UK Government Considers Zero VAT Rate on Land for Social Housing Development
Bank of England Reports Sharp Drop in Emissions and Warns on Climate-Driven Financial Risk
Consumer Confidence in the UK Falls at Fastest Quarterly Rate Since 2022
UK Borrowing Costs Rise Sharply on Gilt Markets Amid Fiscal and Political Concerns
UK Government Plans Legislation to Bring British Steel into Public Ownership
UK Government Secures £210 Million Nuclear Fuel Deal to Support Ukraine Energy Security
London Ambulance Service Reports Record Emergency Call Volume Amid Severe Heatwave
United Kingdom Faces Record June Heatwave as Temperatures Hit 36.7°C in Somerset
UK Financial Services Reform Debate Intensifies Over Ministerial Regulatory Powers
UK Energy Price Cap Rise Expected to Keep Inflation Above Target Through 2026
UK Biohacking and AI Wellness Trends Drive Surge in Personal Health Monitoring
UK Social Care Sector Sees Workforce Shift as Overseas Recruitment Masks Domestic Labour Decline
Nuffield Trust Warns UK Health Budgets Remain Vulnerable Despite Record Spending Levels
UK Coal Pension Surplus Debate Returns to Parliament as Reform UK MP Seeks Clarity on Distribution
UK MPs Consider E-Petition Calling for NHS Newborn Screening for Spinal Muscular Atrophy
UK Parliament Debates E-Petition Calling for Inquiry Into Pro-Israel Influence in Politics
UK Economy Grew 0.6 Percent in Q1 2026 but Business Sentiment Weakens Over Geopolitical Risks
UK Financial Services Bill Enters Lords Committee Stage With Expanded Ministerial Powers
UK Armed Forces Bill Advances With Plans for Defence Housing Service and Drone Defence Measures
UK Treasury Proposes Higher Electricity Generator Levy and Updated Mileage Allowance Rules
UK Parliament Debates Health Bill Amid Persistent GP Access and Patient Satisfaction Concerns
UK Financial Sanctions Regulator Signals Faster, Intelligence-Led Enforcement Strategy
British Chambers of Commerce Warns Business Confidence Crisis Is Dampening UK Investment
UK Parliament Debates Carbon Budget Order as Pressure Mounts on Net Zero Delivery
UK Energy Price Volatility Reinforces Pressure for Faster Electrification of Economy
UK Defence and Aerospace Strategy Gains Momentum as Keir Starmer Pushes Industrial Cooperation in Berlin
×