Bank of England governor Andrew Bailey played down fears over inflation at a central banker gathering in Jackson Hole, Wyoming, suggesting interest rates can wait.
Speaking yesterday in the United States, Bailey suggested that the central bank could still afford to wait and see before putting up interest rates.
Inflation has been on the rise as war in the Middle East pushes up prices, adding to pressure on the central bank to take action. Bank officials are trying to judge whether the effect will quickly fade or could instead lead to a damaging and longer-lasting price spiral.
Bailey said so-called second-round effects were "subdued", suggesting that he continues to resist pressure to increase rates. That is despite inflation remaining elevated, with little sign of the Iran war being resolved.
Latest figures show inflation climbed from 2.6 per cent in June to 2.9 per cent last month. It is expected to climb above 3 per cent later this year.
The Bank of England is the central bank of the United Kingdom, tasked with managing monetary policy and maintaining financial stability. The UK government sets an official inflation target of 2 per cent.
Monetary policy votes and market expectations
Three of the Bank's nine-member Monetary Policy Committee voted last month to raise rates by a quarter of a percentage point to 4 per cent, while most opted to hold at 3.75 per cent.
Markets are betting rates will be left on hold at the Bank's next meeting in September but are pencilling in a quarter-point increase by the end of the year.
The Monetary Policy Committee holds regular rate-setting meetings throughout the year to evaluate economic conditions and set borrowing costs for British households and businesses.
Bailey told Bloomberg TV that the world was facing "even greater uncertainty" than usual "about the immediate situation".
He added: "In the UK, so far I think we're seeing quite subdued second-round effects."
Labour market and inflation risks
Second-round effects describe the risk that inflation gains momentum if a temporary price spike prompts workers to demand higher wages, driving prices higher across the broader economy.
However, weakness in the jobs market would weigh against that pressure. Bailey said the UK had seen a "softening labour market for some time now".
He added: "That's why I think we can watch this situation for the moment. Our job is to get inflation back to target. We will do that."
Bailey also played down the idea the Bank of England might have to respond with a move of its own if the US Federal Reserve raised rates.
He said: "We will have to take decisions to do with the UK."
Disagreement within the central bank
The Jackson Hole conference, hosted annually in Wyoming by the Federal Reserve Bank of Kansas City, is one of the world's premier forums for monetary policy discussions.
Catherine Mann, one of the MPC members who recently voted to increase rates, put the case for raising them to tackle inflation despite some arguing it is only going up because of factors such as higher energy prices, tariffs and AI investment.
Mann told Bloomberg: "Those things that are affecting the prices of goods and services, it has implications for things people buy in stores."
