Bank of England faces the 'most difficult combination,' says governor Bailey as energy prices soar
Bank of England Governor Andrew Bailey described the current economic situation as the 'most difficult combination' due to rising energy prices creating a negative supply shock that simultaneously drives inflation and dampens economic activity. He warned that if higher energy costs lead to persistently elevated inflation, the central bank may need to adjust monetary policy. Despite the concerns, the Bank's Monetary Policy Committee kept the benchmark interest rate unchanged at 3.75% in an 8-1 vote.
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Bank of England policymakers must contend with the "most difficult combination" of economic effects, according to governor Andrew Bailey, as the U.K. faces the consequences of an energy price shock. The U.K. central bank chief told CNBC in an interview on Thursday that the outlook for energy prices is "very uncertain" but a "a long lived effect" of this kind will likely see price growth feed into the rest of the economy and embed inflation more deeply. "This is what we'd call a negative supply shock. In other words, unfortunately, the increase in price of energy product... is also having...a negative effect on activity in economy," he said.
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