Bank of England Governor Andrew Bailey said the central bank can temporarily tolerate inflation running above its two percent [1] target.
This approach signals a shift in monetary priority, as the bank weighs the risk of rising prices against the danger of a deeper economic downturn. By delaying interest rate hikes, the Bank of England aims to support a fragile economy facing stagnant growth and geopolitical instability.
Speaking to an audience at a conference in Reykjavik, Iceland, on May 29, 2026, Bailey said the bank sees no immediate need to move quickly to curb inflation jumps [4]. He said that reacting too early to inflation concerns “may generate undesirable volatility” [1].
The governor linked this cautious stance to the current global climate. Bailey said allowing inflation to run above the central bank's two percent [1] target is justified given the uncertainty about the impact of the Iran war on the economy, and the weak pace of growth [2].
With the bank rate currently at 3.75% [3], the decision to hold steady is intended to prevent a recession [3]. The governor said the bank may let inflation exceed the target temporarily to avoid such a contraction [3].
Bailey's comments suggest that the Bank of England is prepared to accept a period of higher price increases if it means stabilizing the broader economy. This strategy prioritizes growth and stability over the strict adherence to the two percent [1] inflation mandate during a period of high international tension.
“reacting too early to inflation concerns ‘may generate undesirable volatility’”
The Bank of England is pivoting toward a more flexible monetary policy to insulate the UK economy from external shocks. By prioritizing the avoidance of a recession over a strict inflation target, the bank is acknowledging that geopolitical volatility—specifically the war in Iran—and weak domestic growth create a risk profile where aggressive rate hikes could do more harm than moderate inflation.
