LONDON, April 30 (Reuters) – Bank of England Governor Andrew Bailey said policymakers were facing a difficult judgment call over second-round inflation effects from higher energy prices linked to the Middle East conflict, warning they couldn’t wait for conclusive evidence before acting.
Bailey said the longer the conflict in Iran lasted, the worse the impact on the British economy would likely to become, with indirect effects expected to be felt most strongly in food prices as global cost pressures build over time.
“Second-round effects build more slowly than direct and indirect effects,” Bailey said, adding that it left “monetary policy with a difficult judgment call.”
“Because interest rate changes take time to take their effect, monetary policy cannot wait for conclusive evidence of the strength of second-round effects, but responding too early may generate undesirable volatility in output,” he added.
(Reporting by UK Bureau, writing by Sam Tabahriti; Editing by Alistair Smout)
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