BOE's Bailey says inflation would be at target without war
Bank of England Governor Bailey stated that inflation would already be at the 2% target if not for the war, as markets price roughly 50% odds of a November rate hike.
Bank of England Governor Andrew Bailey said on Friday that inflation would already be at the central bank's 2% target if not for the war in Ukraine, offering a relatively optimistic view on the inflation outlook. His comments come as market pricing shows roughly a 50% probability of a rate hike at the BOE's November meeting.
Bailey's remarks suggest that the BOE sees the war-driven energy price spike as a temporary factor that should unwind quickly if oil prices remain subdued. This aligns with the central bank's goal of hitting its inflation target without damaging economic output. For currency traders, the key implication is that the BOE may be less inclined to raise rates aggressively if inflation falls back on its own, which could weigh on the pound. However, the immediate market reaction was muted, with GBP/USD edging up only 6 pips to 1.3352, indicating that Bailey's comments were largely in line with expectations. For real-time GBP/USD quotes, check NowPrice's live forex rates.
Looking ahead, traders will focus on incoming data on oil prices and UK inflation prints in the coming months. If oil stays low, the war's effects could fade by Q4, potentially reducing the need for further BOE tightening. The November meeting remains a live event, with the decision hinging on economic data between now and then. In other UK news, Mayor Andy Burnham announced he will maintain the triple lock on pensions, a separate policy development with limited direct impact on currency markets.