𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

UK interest rates may have been cut twice this year were it not for the Iran war, the Bank of England’s chief has said, as he warned that potential supermarket price controls were “not sustainable” in the long run.

Bank governor Andrew Bailey told MPs on the Treasury Committee that inflation also may have fallen to its 2% target level last month but the energy shock was keeping the cost of living higher.

The conflict has been the “dominating change in the landscape” for the economy, he said.

Mr Bailey added: “It was a reasonable expectation prior to this all happening that we would probably cut once or twice this year, the market was pricing that.

“The market isn’t pricing that now and effectively that was taken off the table.

“Effectively we’ve tightened policy because we’ve removed the expectation of a cut, before you start talking about what happens next.”

Interest rates were held at 3.75% last month, which the governor said was sensible due to the “unpredictability of events in the Middle East”.

Mr Bailey told the committee that two key considerations for the Bank were how long the conflict goes on for, and to assess the potential “lasting damage that has been done to the energy supply infrastructure”.

Asked about reports that British supermarkets had been asked to limit the price of essential food items, the governor said: “If you start doing it as a matter of course then effectively you’re artificially moving prices relative to costs and that’s not a sustainable thing in the long run.

“There may be benefits to doing it in the short term but it does need to be thought through.”

A Government minister denied plans for price caps but confirmed that it is holding talks with supermarkets amid concerns over rising inflation.

Official figures published on Wednesday showed Consumer Prices Index (CPI) inflation fell to 2.8% in April, from 3.3% in March.

Mr Bailey said the data showed “surprisingly benign food price inflation… which was a little bit contrary to what we were expecting”.

But he cautioned over higher oil prices having a “delayed reaction” on energy bills, adding: “The inflation number we had this morning reflected the fact the Ofgem cap came down in April – we know it’s going to go up in July.”