Bank of England Governor Andrew Bailey said the UK would have already reached its 2% inflation target if not for the war in Iran [1].

The statement highlights how geopolitical instability in the Middle East continues to dictate domestic monetary policy by inflating the cost of essential energy imports.

Speaking Tuesday on CNBC’s “Squawk on the Street,” Bailey said high energy prices stemming from the conflict in Iran are the main reason inflation is still above target [2]. According to current data, UK consumer price inflation stands at 3.5% [3].

Bailey said the war has driven up global oil and gas prices, which creates a persistent drag on the economy. While he said the recent dip in oil prices is encouraging, he maintained that war-related price pressures remain a significant obstacle [4].

“If it weren’t for the war in Iran, we would already be at our 2% inflation target,” Bailey said [1].

The Bank of England has previously sought to curb inflation through interest rate adjustments. The Bank Rate was recently held at 3.75% [5].

Bailey's comments underscore the difficulty the central bank faces when inflation is driven by external supply shocks rather than domestic demand. Because energy costs are volatile and tied to the conflict, the bank's ability to lower rates may be limited until global markets stabilize.

““If it weren’t for the war in Iran, we would already be at our 2% inflation target.””

This indicates that the Bank of England views current inflation as 'imported' rather than systemic. By attributing the 1.5% gap between current inflation and the target to the war in Iran, Bailey is signaling that monetary tightening may have limited efficacy against geopolitical shocks, potentially delaying the timeline for interest rate cuts if the conflict persists.