Bailey says AI could cushion economy against energy price shocks
The Bank of England governor says pass-through from high energy prices has been subdued so far, but it is too early to judge
Published
Bank of England governor Andrew Bailey said artificial intelligence could act as a positive supply shock, offsetting the kind of negative supply shocks that have driven inflation in recent years. He said the central bank is seeing subdued pass-through from high energy prices into broader inflation so far, but that it is too early to assess the full effect.
Bailey said the longer energy prices stay high, the harder it becomes for the Bank to maintain its stance of holding bank rate steady. He also pointed to the recent rise in mortgage rates as a factor the Bank is weighing.
His comments sit alongside a more cautious tone from other Bank policymakers. Deputy governor Sarah Lombardelli has said wage growth is still too high for the inflation target to hold, and has said tightening is increasingly likely if energy prices stay elevated without clear signs of disinflation. Swati Dhingra has argued that UK rates already sit above those in the euro zone, and that growth is trailing the US, weakening the case for further increases.
Bailey's suggestion that AI could offset energy-driven inflation gives theoretical cover for the Bank to stay patient, but it does not resolve the split among policymakers. Sterling's recent weakness and volatility in gilt yields suggest markets are already pricing in a rate rise sooner than Bailey's conditional language implies, which means his remarks are unlikely to shift near-term expectations for what the Bank will do with rates.