Bailey Bank of England rates have no ‘secret plan’, governor tells Treasury MPs

Andrew Bailey, governor of the Bank of England, has told MPs that Bailey Bank of England rates policy involves no predetermined course of action, pushing back against suggestions that the central bank has a covert strategy to raise borrowing costs unconditionally.

Speaking before the UK Parliament Treasury Committee, Bailey acknowledged that risks to inflation are tilted to the upside, meaning prices are more likely to overshoot official forecasts than fall short. However, he was clear that financial market expectations of a rate rise do not amount to a guarantee that one will happen.

‘The risks are on the upside, the risk particularly being with energy prices,’ Bailey told the committee. ‘What I want to dispel is the idea that we have a secret plan and we know where we are going to go to.’

Where rates stand and what the MPC voted

UK interest rates currently sit at 3.75%, a level the Bank of England’s Monetary Policy Committee (MPC) confirmed when it voted on 30 July to leave them unchanged. According to the House of Commons Library, that vote was split: six members voted in favour of no change, while three voted to raise rates by 0.25 of a percentage point. The closeness of that result shows the MPC is far from settled in its thinking, even as Bailey seeks to calm market nerves about the direction of travel.

The Bank’s central projection, as set out by the House of Commons Library, has Consumer Prices Index (CPI) inflation expected to peak at around 3.2% in the fourth quarter of 2026. CPI is the main measure used by the government to track the cost of living, tracking the price of a basket of everyday goods and services. That projected peak sits above the Bank’s 2% inflation target, which goes some way to explaining why three MPC members were already willing to vote for a rate increase at the July meeting.

Energy prices and Bailey Bank of England rate concerns

Bailey pointed squarely at energy markets as the main source of uncertainty. The continuing Middle East conflict, he said, is sustaining elevated energy prices and creating volatility that feeds through into financial markets.

‘To state the obvious, the conflict is still going on and causing a high level of energy prices,’ he told MPs. ‘Quite a bit of volatility in energy prices is feeding through into financial markets. We have higher energy prices and they could be higher still.’

Megan Greene, an external member of the MPC who voted in favour of a rate increase at the previous meeting, also raised concerns about volatile energy and commodity costs when addressing the committee. She said the duration of the conflict was itself a source of worry.

‘The conflict has been six months now so that worries me in terms of volatility down the line,’ Greene said. ‘We face such incredible uncertainty so, in my view, it is appropriate to take a risk management strategy and think about how you manage your losses.’

Greene also signalled that the committee may not receive the clearest economic evidence for some time yet. ‘I wouldn’t be surprised if we didn’t have conclusive evidence on second round effects until next year at some point,’ she said. Second-round effects refer to the way an initial price rise, such as in energy, can push up wages and then the prices of other goods, embedding inflation more deeply into the economy. ‘Ultimately, we need to make a judgment now rather than wait for conclusive evidence of second round effects,’ she added.

What happens next

The MPC is due to meet again before the end of summer, with its next decision scheduled for announcement on 17 September, according to the House of Commons Library. That meeting will again put the question of whether to hold, raise or reduce rates to a committee vote, and given the current split of opinion within the MPC, another close result is plausible.

Bailey’s message to the Treasury Committee was, in effect, a call for patience. Markets may be pricing in a rise, but the governor is insisting that no decision is written in advance, and that the Bank will weigh the evidence, energy prices included, before committing to any move on 17 September.