BoE's Bailey says above‑target inflation tolerable for now amid Middle East uncertainty

(Sharecast News) - Bank of England governor Andrew Bailey said on Friday that allowing inflation to sit above the central bank's 2% target was justified for now, given the uncertainty created by the Iran war and the UK's weak growth backdrop.

However, he warned that this tolerance would fade if signs of longerterm, secondround inflation pressures began to emerge.

Bailey noted that the Monetary Policy Committee kept rates on hold at its 30 April meeting as it assessed the economic fallout from the conflict, even as the Bank projected a rise in inflation due to the energy price shock.

He reiterated that policy had already tightened by taking rate cuts off the table, and said the Bank would continue to monitor developments in the Middle East closely and adjust policy if needed.

While Bailey and most MPC members have signalled they are in no rush to raise borrowing costs, the governor welcomed the recent scalingback of market expectations for further hikes.

Market participants have now fully priced in just one quarterpoint increase this year, compared with more than three expected in March. Bailey said whether that repricing continues will depend heavily on events in the Middle East.

Reporting by Iain Gilbert at Sharecast.com