Global: Bank of England’s Bailey: Inflation Slowdown Continues, 2025 Surge Temporary

Bank of England (BoE) Governor Andrew Bailey has reassured that inflation is slowing, and an anticipated rise in price growth later in 2025 is unlikely to cause long-term inflationary pressures in the economy.

Inflationary Trends and Economic Outlook

In an interview with BusinessLive during a visit to South Wales, Bailey explained that the expected uptick in inflation is primarily due to regulated price increases for essential services such as energy and water. However, he emphasized that the broader economic context—marked by sluggish growth—would likely counteract any persistent inflationary trends.

“The context does not really support the view that inflation will become more persistent, so we looked through that,” Bailey stated. He added that the recent data showing a mere 0.1% GDP growth in the fourth quarter did not significantly alter the central bank’s overall outlook.

Earlier this month, the BoE reduced its benchmark interest rate from 4.75% to 4.5% while simultaneously cutting its 2025 economic growth forecast to 0.75%. Despite this, inflation is projected to reach 3.7% later this year—almost double the BoE’s 2% target. This led the central bank to adopt a more cautious stance, introducing the word “careful” in its guidance on future rate cuts, reinforcing that any reductions would be gradual.

“We still see gradual disinflation happening. The after-effects of what occurred two or three years ago are wearing off, but it’s a slow process,” Bailey noted. “And ‘careful’ was added because the risks go both ways.”

Global Trade and Banking Regulations

Bailey also reiterated that U.S. trade tariffs could either increase or decrease inflation in the UK, depending on their broader impact on global trade and economic conditions.

On banking regulations, he expressed encouragement over Federal Reserve Chair Jerome Powell’s stance on implementing Basel 3.1 rules on bank capital in the U.S. The BoE had postponed the UK’s implementation of these rules to January 2027, awaiting clarity on U.S. policy, particularly under Donald Trump’s administration.

As the BoE continues to navigate inflation control and economic stability, Bailey’s cautious optimism suggests that while inflationary pressures persist, the broader economic environment remains a key factor in shaping monetary policy decisions.