Bank of England policymakers laid out a clear divide over how to respond to the renewed energy shock at a Treasury Committee hearing in parliament on Tuesday. Governor Andrew Bailey warned that “we’ve got higher energy prices. They could be higher still,” pointing not only to disruption around the Middle East but also to wider pressures on refining capacity. Bailey noted that part of the widening crack spread reflects Ukrainian attacks on concentrated Russian refining capacity, stressing that “quite a bit of the crack spread is actually not to do with… the Strait of Hormuz.” His message was that the inflation shock is broader than any single geopolitical channel.
Megan Greene, who voted for a 25bp rate hike in July, made the strongest case for acting pre-emptively. Her concern is not simply the level of oil prices but how long they remain elevated and whether that persistence generates second-round effects through wages and prices. Greene argued that if policymakers respond to the risk of higher energy costs and stronger second-round effects only to find the shock proves smaller, “then you can course correct, you’ll stay on top of inflation.” The logic is explicitly asymmetric: tightening too early can be reversed, while allowing persistent inflation to become embedded may be harder to undo.
Deputy Governor Dave Ramsden offered the counterargument. He acknowledged that the global inflation outlook presents more upside risk, but emphasized that domestic wage growth has come in below the BoE’s forecasts this year. That softer domestic picture was enough for Ramsden to support holding Bank Rate at 3.75% at the previous meeting rather than joining Greene’s call for a hike. The disagreement therefore centres less on whether the external shock matters than on how much weight to place on still-benign domestic inflation evidence before acting.
Bailey also highlighted another potential source of upside risk from food prices. He said “food price inflation has come in under where we thought it would,” but warned that risks remain tilted higher and that the Bank has already built stronger food inflation into its year-end forecast. Taken together, the hearing leaves the BoE with a familiar but increasingly important split: Greene wants to insure against an energy shock becoming persistent, while Ramsden sees enough domestic softness to justify patience. Bailey’s warnings keep the inflation risks elevated without, in the excerpts supplied, committing him to either side of that policy divide.
Key Takeaways
- BoE Governor Andrew Bailey warned that energy prices are already high and “could be higher still,” while stressing that the pressure on refined products is not solely a Strait of Hormuz story.
- Bailey also said “food price inflation has come in under where we thought it would,” but warned that food risks remain tilted to the upside and stronger inflation is already built into the Bank’s year-end forecast.
- Megan Greene made the clearest hawkish case, arguing that persistent energy costs raise the risk of second-round effects and that policymakers can “course correct” later if the inflation shock proves smaller than feared.
- Dave Ramsden took the more cautious view, pointing to wage growth running below BoE forecasts and arguing that the domestic inflation picture remains relatively benign despite stronger global risks.
- The core MPC disagreement is therefore not whether the external inflation shock matters, but whether policymakers should act before it feeds into domestic wages and prices.
- The hearing reinforces a divided BoE rather than a settled tightening consensus, with Greene favoring pre-emptive action and Ramsden still seeing room to wait.
