Bank of England chief Andrew Bailey says 'global shocks' are major threat to UK economy

Mr Bailey said he is monitoring the Red Sea situation amid concerns over oil supplies

Andrew Bailey said he hoped mortgage costs continued to fall following the Bank of England's decision to pause interest rate rises. EPA

“Global shocks” are a major threat to the UK economy, Bank of England governor Andrew Bailey told MPs on Wednesday, adding he is monitoring the situation in the Red Sea closely amid concerns over oil supplies.

Mr Bailey also said he was hoping to see mortgage costs continue to fall following the Bank of England's decision to pause further interest rate rises.

The Bank chief told MPs at a Treasury Committee session that he thought there was clearly the “potential for further global shocks” when asked about the top threat facing the UK economy this year.

The Bank is closely monitoring the situation in the Red Sea, he added.

It comes after attacks by Iran-backed Houthi rebels on ships in the critical trade route through the Suez Canal, causing some vessels to reroute over safety concerns.

Last month BP said it was pausing all shipments of oil through the Red Sea because of the threat of attacks.

“We’ve certainly seen – as best we can tell from the monitoring – shipping traffic is being affected and is being rerouted. That will increase shipping prices and shipping costs,” Mr Bailey said.

“I think initially that will be an issue in the monetary policy world.”

He said there has been no “prolonged spike” in oil prices as a result.

“We have to watch it very carefully, though, because it is obviously having an effect,” he told the committee.

Interest rates explained – video

Sarah Breeden, the deputy governor for financial stability at the Bank, said “uncertainty” was a major threat, for example about the macroeconomic environment, geopolitical tensions, credit risks and unemployment.

“The risk environment at the moment feels particularly challenging … I do think the set of circumstances that we currently face are extraordinary,” she told MPs.

During the session Mr Bailey was also asked about how UK households were faring in the current climate of higher interest rates.

“We’ve now had quite a big change in market interest rates in recent months, so that the cost of mortgages is coming down,” the governor said.

“Let’s just take the market for the moment – obviously that is feeding through into mortgage costs and I hope that is something that continues.”

“I think the rental market is more stretched because you’ve got a higher proportion of low-income households in the rental market,” he added.

“Rental inflation is currently around 6 per cent … I really hope that’ll come down and lower interest rates obviously help that as well.”

Mr Bailey underlined that individual circumstances will be different and that the Bank recognises there are people in the UK experiencing “very difficult circumstances” amid the higher cost of living.