Bailey: Oil's Slide Didn't Sway the BoE's First Rate Hike Since 2023

Andrew Bailey isn't blinking. The Bank of England governor said Thursday that the central bank would still have raised rates even if policymakers had known about the newest developments in the Middle East, pointing to inflation pressure that was already building in the economy before the conflict escalated. He flagged the drop in oil prices over the past 48 hours as a sign of just how jumpy markets have become, and how much hope is priced in for a resolution to the Iran conflict. He stayed quiet on today's rebound and wouldn't commit to any monetary path without the war clearly resolved.

The hike itself landed earlier Thursday: a quarter-point move that puts the bank's rate at 4%, the first increase since August 2023. Eight members of the Monetary Policy Committee voted for it, while one pushed for a bigger half-point move that would have taken the rate to 4.25%, according to the central bank's statement. Committee members tied the decision to the Middle East conflict and its knock-on effects on prices.

Bailey made clear this probably isn't the finish line. Speaking at a press conference, he said today's increase does not seem likely to be the last one, warning that further tightening could be needed unless the Middle East conflict gets resolved. He also described a business landscape where operating conditions are tough and companies are struggling to pass higher costs on to consumers. Limiting the fallout from the Iran conflict, he said, is the priority.

The governor sketched out several scenarios for how the conflict could unfold. He noted the market's interest rate curve implies more restrictive monetary conditions into next year — but said that mostly reflects risk premia rather than bets on higher rates, which he called a reasonable read on energy-related risks.

The backdrop is anything but calm. Iran's Islamic Revolutionary Guard Corps said Thursday that another oil tanker caught fire after striking a naval mine in the Strait of Hormuz, insisting the vessel was moving through an unsafe area with its detection and navigation systems switched off, according to Breaking The News. The IRGC repeated its warning that the strait is not safe and is closed to vessels trying to transit without prior coordination.