Cutting interest rates is ‘off the table’, says Andrew Bailey

Andrew Bailey has said cutting interest rates is “off the table at the moment”, in a signal that the Bank of England will keep borrowing costs on hold later this month.

The Bank Governor said while earlier this year financial markets had expected rates to continue to come down, the war in Iran had forced policymakers to press pause.

Speaking at the European Central Bank forum in Sintra, Portugal, Mr Bailey said: “There was an expectation that we would cut rates this year. That was off the table in March, and it’s off the table at the moment.”

However, Mr Bailey added he had decided not to vote for an increase so far this year because of evidence of a weakening UK economy and labour market.

The comments come as financial markets expect the Bank to hold borrowing costs at 3.75pc for the rest of the year.

Mr Bailey said: “We’ve got a softening economy, so we’re seeing a softening labour market, we’re seeing some softening of activity … We had that before the hostility broke out in the Gulf.”

He added that by holding rates in March, the Bank had taken “that loosening off the table”, with mortgage rates rising by 1pc.

Mr Bailey added that members of the Bank’s Monetary Policy Committee (MPC), who set rates, “will be looking at all the evidence again” when they meet on July 30.

At the Bank’s last meeting on June 18, policymakers voted 7-2 in favour of holding borrowing costs at 3.75pc.

Mr Bailey said MPC members were paying close attention to how higher oil and gas prices are affecting the wider economy and driving inflation.

Mr Bailey said: “We’re very focused on the risks of pass-through of the energy prices to indirect effects, and things like food prices and the second round effects. We obviously don’t want inflation to become embedded.”

Inflation stood at 2.8pc in May, but it is expected to rise to around 4pc later this year as the Iran war pushes up the cost of energy for households and businesses.

He added that the UK’s energy price cap, which sets the rate of household energy bills every three months, means that the impact of soaring gas prices on inflation is delayed.

In May, Ofgem, the regulator, raised the cap on annual household energy bills by £221 to £1,862 following a surge in oil and gas prices.

The new energy price cap will come into force from July 1 and last until Sept 30.