Bank of England Governor Andrew Bailey indicated that the central bank could afford to delay further interest rate hikes, suggesting that fears over persistent inflation might be overblown. Speaking at a central bank governors' gathering in Jackson Hole, Wyoming, Bailey downplayed concerns that the current rise in inflation, partly driven by the war in the Middle East, would lead to a damaging and prolonged price spiral.

Bailey stated that so-called "second-round effects" – where an initial price increase prompts broader wage demands and further price rises – appeared to be "subdued." This assessment suggests he is resisting pressure to immediately increase rates, despite inflation climbing from 2.6% in June to 2.9% in July, with expectations it could exceed 3% later this year.

While three of the Bank's nine-member Monetary Policy Committee (MPC) voted to raise rates to 4% last month, the majority opted to keep them at 3.75%. Market expectations are for rates to remain unchanged at the September meeting, though a quarter-point increase is anticipated by the end of the year.

Bailey acknowledged that the global situation presents "even greater uncertainty" but reiterated that in the UK, "we're seeing quite subdued second-round effects." He also noted that a "softening labour market for some time now" would weigh against inflationary pressures from wage demands. "That's why I think we can watch this situation for the moment," Bailey said. "Our job is to get inflation back to target. We will do that."

He also indicated that the Bank of England would not necessarily follow the U.S. Federal Reserve's actions on interest rates, stating, "We will have to take decisions to do with the UK."

However, some MPC members, like Catherine Mann, who recently voted for a rate increase, argue that rising prices for goods and services, influenced by factors such as energy costs and tariffs, have broader implications for consumer spending and necessitate a policy response. Mann suggested that these price increases "have implications for things people buy in stores."