The pound rose to 1.3550 on Tuesday as Bank of England governor Andrew Bailey warned MPs that the war between the US and Iran has pushed energy prices higher and could push them higher still. Bailey testified alongside fellow policymakers Sir Dave Ramsden, Megan Greene and Taylor, who each flagged the same upside risk to inflation from high energy prices.
Cable climbed 12 pips to 1.3550, helped by a broadly softer US dollar, as Bailey told the Treasury select committee that energy prices could climb further because of the war between the US and Iran.
Bailey flags upside risk to inflation
Testifying alongside Sir Dave Ramsden and Megan Greene, Bailey said the conflict has already driven energy prices higher and that they could rise further still. He also pointed to Ukrainian attacks on Russian refineries as a further factor keeping energy prices elevated.
According to the Financial Times: "That volatility is feeding through into financial markets." Bailey added that the UK has seen a sharper rise in mortgage rates since the conflict began than many peer economies, which is weighing on the economy.
Ramsden, Taylor and Greene weigh the same risk
Ramsden said domestic inflation remains relatively benign, but that the global inflation picture presents much more of an upside risk, and that UK wages have come in below what was expected before the conflict began. Meanwhile, Taylor said holding the bank rate at a moderately restrictive level provides insurance against external risks, though he added that policy would have to respond forcefully if evidence of persistent price pressure builds.
Greene, for her part, said the length of time oil prices have stayed high worries her about second-round effects on wages and pricing.
Rate outlook stays tilted higher
The MPC held its bank rate at 3.75% in July but signaled it could still need to raise borrowing costs if inflationary pressures prove prolonged. Traders currently price in one or two quarter-point rises from the MPC by year-end, according to levels implied by swaps markets, though they assign only a slim chance of a move at next week's meeting.
Sources: investingLive, Financial Times
Trading involves risk.
Risk Disclaimer
