BoE Governor Bailey (post-meeting statement) says conflict in Middle East having a significant economic impact

POLICY STANCE:

Where we go from here depends on size and duration of energy shock
The longer the conflict lasts, the worse the impact will become
Prolonged higher energy prices could result in a higher Bank Rate
Rates held due to 1) weakness in activity, likely to reduce second round effects; and 2) uncertainty about strength of second-round effects

GEOPOLITICS:

INFLATION:

Sees inflation at above 3.5% by year-end, due to Middle East conflict
Notes uncertainties surrounding forecasts
Higher energy will feed through to consumer prices
Indirect impact will be seen on food prices, which may also rise due to increasing fertiliser prices
There is nothing monpol can do to prevent Middle East impact on inflation
The 2% inflation target applies at all times; but bringing it back to target quickly after a shock like this can cause volatility
Monpol usually looks through one-off impacts of energy on inflation; looking through can avoid volatility, given policy lags
Second-round effects are possible in some scenarios; will depend on UK labour markets, and firms' pricing powers
Monpol faces difficult judgements as cannot wait for conclusive evidence on second-round effects
Inflation expectations have risen in response to energy shocks