As the Bank of England prepares for its next rate decision on September 17, Governor Andrew Bailey remains steadfast in his belief that significant second-round inflation effects have yet to materialize in the UK economy. Speaking at the Federal Reserve's Jackson Hole economic symposium, Bailey noted that the second-round effects observed so far have been relatively moderate, adding that the labor market has shown signs of weakening for some time. He expressed confidence that policymakers can continue to monitor the situation for now.

This marks Bailey's first public comments on monetary policy since July 30, when the Bank of England voted 6-3 to hold interest rates steady, with Bailey among those supporting the hold. At the post-meeting press conference, Bailey cautioned against expectations of a gradual move toward rate hikes, yet traders have since intensified their bets on tightening. Markets now fully price in a 25-basis-point rate increase this year, along with another quarter-point hike by spring, while short-dated UK gilts have underperformed their US counterparts.

The prolonged conflict between the United States and Iran is heightening the risk of a broader global inflation crisis stemming from energy supply shocks. European Central Bank officials have begun leaning toward a second rate hike since the conflict erupted, as eurozone inflation hovers around 3% amid stronger-than-expected economic growth.

Bailey also addressed the Bank's approach to policy evaluation, emphasizing that it assesses the situation on a meeting-by-meeting basis. He argued that in an increasingly volatile world, forward guidance may not be appropriate. "The problem with forward guidance—and I think Fed Governor Warsh hit the nail on the head—is that it tends to lead to unconditional statements about policy," Bailey said. "That's the issue and the risk, and I agree with his view."

The latest UK consumer price index data shows inflation has ticked up for the first time since March, as energy bills surge amid the Iran conflict's fallout. Household confidence has shifted accordingly, with expectations for price growth over the next year rising to 3.9% in August—nearly double the Bank's target. However, the labor market remains soft, with businesses cutting jobs, job vacancies falling to a five-year low, and private-sector wage growth continuing to decline.

"At this point, the second-round inflation effects we're seeing are relatively mild," Bailey stated. "I can't guarantee that this will persist."