London Daily

Focus on the big picture.
Saturday, Aug 08, 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
Australian Crew Evacuates Seriously Ill American From Antarctica in Midwinter Darkness
Trump’s Top General Seeks an Exit Strategy From Iran War, Report Says
Brock Lesnar Retires From Wrestling, Closing a Career of Rare Athletic Range and Lasting Controversy
Welsh First Minister Raises Independence With UK Prime Minister in First High-Level Call
UK Maintains Severe Terror Threat Level as Prevent Report Highlights Online Radicalization
YouGov Poll Shows Labour Favourability Improves as Reform UK and Greens Lose Ground
Brexit Campaigner Arron Banks Admits Hiring Private Investigator to Examine Journalist
Robert Jenrick Leaves Conservatives for Reform UK in Major Parliamentary Defection
July 2026 Was England and Wales’ Driest Month on Record, Met Office Says
UK Government Considers Public Inquiry Into Jeffrey Epstein’s UK Connections
Trump-Era Policy Shifts Test the Boundaries of U.S. Institutions
UK Drought Cuts Harvests and Raises Food-Security Fears
UFO: Pentagon Releases Video of Unidentified Object Tracked Over Middle East
US Health Secretary: “I’m Not Afraid of Germs — I Used to Snort Cocaine Off Toilet Seats”
Ukraine Tells Senate Republicans Its Drone War Offers a Blueprint for America
Weight-Loss Drug Boom Tests the Limits of Prescription Advertising Rules
Trump Keeps Hegseth at Pentagon While Leaving Door Open for DeSantis
UK Clears Paramount’s Warner Bros. Discovery Deal, but US Trial Looms
UK Prosecutors Add 38 Charges Against Andrew and Tristan Tate
Taiwan’s President Joins Wartime Command Drill as China Pressure Grows
Saudi Arabia, Turkey and Pakistan Sign Mutual-Defence Pact
Government Orders Review of Prison Release Rules After Concerns Over Grooming Gang Offenders
Rail Disruption Continues Across North-West England Amid Infrastructure Problems and Engineering Closures
UK Tax Authority Proposes Broad Changes to Rules Governing Company Distributions
UK Government Moves to Protect Standing Areas Outside Pubs From Local Restrictions
Extreme Right-Wing Referrals Under UK Prevent Programme Rise 42 Percent
EU Citizens in UK Warned That Some Residency Rights May Have Been Granted in Error
Every Monitored Body of Water in England Fails Chemical Purity Standards, Government Data Shows
UK Scientists Create First Artificial Intelligence-Designed Viruses
England Orders Primary Schools to Identify Children at Risk of Becoming Disengaged From Education or Work
Government Moves to Close Prison Release Loophole Amid Concern Over Grooming Gang Offenders
UK Economy Shows Modest Growth Despite Energy Volatility and Global Supply Pressures
Police and Prosecutors Failed to Stop Sex Offender Who Later Murdered Two Women, Review Finds
Millions in England Face Longer Mental Health Waiting Times as NHS Providers Cut Spending
Met Office Warns of Heatwave as Temperatures Across England and Wales Could Reach 36 Degrees Celsius
HMRC’s 2029 Tax Shift Could Overlap Old and New Self-Assessment Bills
Thetford Disorder Prompts Expanded Police Powers Amid Asylum-Housing Protests
Cambridge Faces Calls for Independent Review of Jason Arday Appointment
Scotland’s ‘Cock of the North’ Woodland Is Being Felled After Wind Damage
Reform UK and Greens Unite Against Vast Solar Plans for Kent Marshland
New Zealand Draws Wealthy Americans With Revamped Investor Visa
Senate Panel Votes to Hold Anthony Fauci in Contempt After Fifth Amendment Testimony
Cambridge Professor Jason Arday Resigns as University Opens Inquiry Into His Credentials
Manchester Power Failure Disrupts Trains Across North West Into Friday
UK Fashion and Tourism Sectors Prepare for Strong Summer and Autumn Activity
London Residents Seek Appeal Against Approval for Chinese Super-Embassy Development
UK Environment Officials Issue Biosecurity Alert Over Rising Bluetongue Cases in Livestock
UK Charity Regulator Opens Investigations Into Donations Linked to Israeli Settlements
Gatwick Expansion and Chinese Embassy Plans Highlight Growing UK Infrastructure Disputes
UK Agriculture Authorities Warn of Rising Bluetongue Virus Cases Among Sheep Farms
×