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War in the Middle East has caused “a major supply shock”, the head of the Bank of England has said, but he remained tight-lipped on what it could mean for interest rates.

However, while Andrew Bailey acknowledged the Iran conflict had caused a “large” jolt to the global economy, he said the UK was much better placed to deal with it because of its resilient banking system, forged in the wake of the 2007-09 financial crisis.

The governor of the central bank was speaking before financial leaders, including Chancellor Rachel Reeves, arrived in Washington DC for the spring meetings of the International Monetary Fund (IMF).

Earlier, the influential body issued a gloomy outlook which found Britain had suffered the sharpest cut to growth forecasts of the largest global economies.

The IMF said the spike in energy prices caused by the war would help push UK inflation towards 4% – double the Bank of England’s inflation target – and contribute to higher costs for households.

The conflict hit oil and gas supplies as Iran tightened its grip on the strategic Strait of Hormuz, giving rise to a US blockade of the country’s ports amid a shaky ceasefire.

As Prime Minister Sir Keir Starmer leads effort to ensure the future free navigation of the critical Gulf waterway, US President described the UK as “absolutely crazy” for not boosting oil extraction in the North Sea and urged the country to “drill, baby, drill”.

Meanwhile, Ms Reeves has condemned the US president’s “folly” of going to war with Tehran without an exit plan.

Speaking in New York before travelling to the IMF summit in Washington, Mr Bailey said: “We obviously are going through another large shock in the world economy that has monetary policy implications, it has potentially financial stability implications as well.”

But he added: “I would argue that we are in a much better place today because we have got a resilient banking system, than we would be if we didn’t have.

“I think if we didn’t have a resilient banking system, I’m not going to predict what would happen, but I think we would be spending a lot more time worrying about financial stability.

“I’m not saying we’re not worrying about financial stability, but we have got a resilient banking system, and that is because we’ve spent the best part of what, 17 years now, since the financial crisis, ensuring that we got back to that position.

“That underlying resilience is important, because we don’t get stability more broadly, we don’t get growth on our economies without it.”

Mr Bailey chairs the bank’s Monetary Policy Committee (MPC), which sets interest rates that influence lending and saving.

The nine-strong group will next meet on April 30 to make a decision, and Mr Bailey said he was taking a position of “studious neutrality” on the issue.

Referring to the current Middle East crisis, Mr Bailey said: “It’s a major supply shock. I said in the paragraph I wrote in the last MPC minutes, there’s no question that the best way to deal with supply shocks is at the source of the shock.

“The source the shock is not monetary policy. It’s obviously what’s going on in the Gulf and in the Strait of Hormuz.

“The source of the shock is not monetary policy. It’s obviously what’s going on in the Gulf and in the Strait of Hormuz.

“What we have to do is assess both the so-called first-round effects, which is obviously how long is this thing going to go on for? What is going to be the impact of it?

“But then we also have to assess the second-round effects on inflation, which are going to be really to what extent is it going to generate persistence?

“And that will require us to set that against the background of the condition of both the UK economy and the world economy we’re operating in. And that’s the judgment that we’re going to have to exercise repeatedly.”