Russia-Ukraine war has made it nearly impossible for BoE to forecast UK economy, warns governor Bailey

Uncertainty about how the Russia-Ukraine war will develop has made it nearly impossible for the Bank of England to chart the trajectory of the UK economy, the Bank’s governor warned today.

A lack of information on the Kremlin’s next moves in their assault on Ukraine has made it harder to forecast the direction of the British economy, Andrew Bailey said today.

His comments come after the Bank tempered its forward guidance at its last rate setting meeting to rein in market expectations for the speed of rate hikes this year.

Governor Bailey stated that predicting what the world will look like at the end of April is an “unusually hazardous business”.

The Bank published fresh economic forecasts at its meeting on 3 February in which it hiked interest rates at back-to-back meetings for the first time since 2004.

However, in the time that lapsed between its next meeting on 17 March, Russia had invaded Ukraine, sending oil prices briefly to their highest level since 2008 and gas prices to a record high, effectively meaning the Bank’s next set of projections on 5 May will be drastically different.

“Giving guidance on policy looking forwards should recognise the uncertainty we face… It’s really with that in mind that we changed our language in our last meeting,” Bailey said.

He warned the “shock from energy prices this year will be larger than any single year in the 1970s” when the UK and other Western nations were hit hard by middle eastern countries launching oil embargoes.

Inflation is already running at 30-year high of 6.2 per cent.