PRESS: BoE's Bailey warns prolonged energy shock raises rate hike risk

Bank of England Governor Andrew Bailey warned in an interview with CNN on Tuesday that the longer the energy shock from the Iran war persists, the harder it will be to avoid raising interest rates.

Speaking in Bangkok at the annual meetings of the International Monetary Fund and World Bank, Bailey said that second-round inflationary effects, including businesses passing on higher costs and workers demanding higher wages, had so far been "more subdued in the UK", but cautioned that it was still "early days".

"The longer this goes on, the harder it gets," Bailey said, according to Bloomberg. "We are seeing greater resilience in UK economic activity, which is good - we will obviously factor that in."

Markets are pricing in a near-100% probability of the BoE raising interest rates at its November meeting, which would mark its first increase in more than three years. Traders expect a further three quarter-point increases by next summer.

However, BoE Chief Economist Huw Pill, one of the central bank's more hawkish policymakers, expressed scepticism on Wednesday about market expectations for four interest rate increases totalling 100 basis points, Bloomberg reported.

"Is it obvious that we will need to follow market pricing to four 25 basis point hikes and so forth? There I would be a little bit more skeptical," Pill said at the event in Bangkok.

"To get to 100 basis points, then I do think we probably need to see some more concrete manifestation of these risks."

Bloomberg reported that more BoE policymakers were moving towards supporting higher borrowing costs, although concerns over the labour market and tighter financial conditions had previously encouraged the majority to hold rates steady.

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