Bank of England chief warns against waiting on rates amid Iran conflict
The BoE’s top economist urges a proactive rate move before September’s meeting, warning that delay could lock the UK into a new inflation cycle.
Bank of England chief economist Huw Pill told business leaders in Scotland that a "wait‑and‑see" stance on interest rates could let a fresh wave of inflation take hold as the war in Iran drags on.
Why the warning matters now
Pill, a long‑time hawk on the Monetary Policy Committee, said the uncertainty surrounding the conflict is unlikely to settle quickly, and a bias towards keeping rates unchanged would leave policy "behind‑the‑curve". A delayed response, he warned, could make it harder for the central bank to rein in price pressures later.
“The problem with… a wait‑and‑see approach is that these uncertainties may not resolve themselves as quickly or definitively as we would hope, leading to a status quo bias in the setting of Bank Rate,” he said.
He urged the committee to act "clearly, promptly and decisively" at its next meeting on 17 September, a decision that will be closely watched by markets and households alike.
What could happen after September
In July, Pill was one of three members to vote for a 25‑basis‑point hike, citing the same geopolitical risk. The committee ultimately left the Bank Rate at 3.75 per cent, marking the fifth straight meeting without a change.
Minutes from that session warned of an "insidious" wage‑price spiral if rates stay too low for too long. While higher energy costs have not yet filtered fully into consumer prices, the outlook for October’s energy bills is for a sharp rise.
Labour market slack, Pill noted, may dampen workers’ ability to demand higher pay, reducing the risk of a full‑blown second‑round effect. Still, he cautioned that slack does not guarantee the absence of such effects.
The next policy decision will likely hinge on whether the BoE believes the current inflationary shock is transitory or the start of a more persistent trend. A rate rise would aim to curb expectations, while a hold could signal confidence that the shock will fade.
For a broader view of how fiscal policy interacts with monetary moves, see Andrew Griffith’s shadow chancellor appointment.
