Bank of England Governor Andrew Bailey on Tuesday sought to correct what he called a misperception among investors that further interest rate increases are automatic. Speaking to parliament's Treasury Committee, Bailey emphasised that any decision to change policy will be driven by economic and geopolitical developments rather than a predetermined schedule.
Bailey told lawmakers that market-implied expectations currently exceed the central bank's most likely policy trajectory. He described a "risk premium" embedded in market pricing and linked it to investor worries over the potential for higher energy costs. That, he said, has pushed market pricing for future rate moves beyond what the Bank judges most probable.
During the session, Bailey and three other members of the Monetary Policy Committee said they were maintaining their existing stances ahead of the Bank of England's interest rate announcement on September 17. Bailey was explicit in rejecting the suggestion that the Bank is operating under an unconditional, preordained plan for future rate increases.
Market prices currently imply a quarter-percentage-point increase in the Bank's policy rate by year-end, with a further two hikes priced in for 2027. The Bank has left rates unchanged since the outbreak of the Iran war at the end of February, a period in which geopolitical developments have been a notable factor in market assessments.
By contrast, the European Central Bank lifted rates in June and, according to market expectations referenced during the hearing, is seen as likely to act again on a forthcoming Thursday. In the case of the Bank of England, investors perceive only a small chance of a rate rise at the next decision meeting.
Bailey's comments framed the central bank's approach as contingent and data-dependent: policy will respond to economic indicators and geopolitical events rather than follow a fixed timetable. He also highlighted the divergence between market sentiment and the Bank's current view of the likely policy path, pointing to energy price uncertainty as a key element of that divergence.
The testimony underscored the BoE's posture ahead of the September 17 announcement, with policymakers publicly reaffirming their present positions while cautioning against assuming a simple or inevitable path for further tightening.