But UK inflation impact limited for now, Bailey tells MPs
Bank of England governor Andrew Bailey (pictured top) has said he is concerned about the renewed outbreak of hostilities between the United States and Iran but that the impact on the UK's inflation outlook has so far been modest.
Bailey voted last month with the 7-2 majority on the Monetary Policy Committee to hold interest rates, at which point he assessed the risks from the conflict in Iran as falling around the lower end of the central bank's three scenarios.
"But I would have added the very strong caveat to that it seems to me that the situation remained unstable, and the ceasefire was fragile," said Bailey, speaking before the Treasury Select Committee. "I think where I am now for the moment is that obviously that, as I say, that instability has come to pass. It underlines that this is going to be an unstable process for the foreseeable future."
The central bank chief said economic data pointed to limited pass-through to domestic prices. "We are seeing continued fairly soft evidence on the pass-through into UK prices," he said.
Bank of England Governor Andrew Bailey said the resumption of hostilities between the United States and Iran in recent days had increased risks to financial stability https://t.co/6ycvj78Kc9 pic.twitter.com/WYvVnLwB2R
— Reuters (@Reuters) July 14, 2026
UK gilt yields rose earlier on Tuesday to their highest level since May as investors increased their expectations of rate rises by the Bank of England, driven by rising oil prices amid US-Iran tensions and comments from a Federal Reserve official signalling a potential increase in borrowing costs.
Asked whether a change in prime minister would affect financial stability, Bailey declined to comment on political matters, but said the UK outlook was underpinned by the government's fiscal framework and the Bank's monetary policy settings. Former Manchester mayor Andy Burnham, who is expected to replace Keir Starmer as prime minister next week, has pledged to adhere to existing fiscal rules, though some investors remain concerned about the prospect of increased public spending.
Bailey identified growth as the central challenge for the UK economy. "I think the big issue is growth in the economy," he said. "So I think we can do all we can on financial stability."
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