Bank of England chief warns of ‘future shocks’ de...

Bank of England governor Andrew Bailey is warning that ‘future shocks’ may yet derail economic recovery.

In a session with MPs at the House of Commons Treasury Select Committee, Bailey and his deputy governor - Sarah Breedon - warned that issues like Middle East war and Red Sea shipping route disruption could yet unsettle the UK economy.

He told MPs he was hopeful that lenders would continue to shave mortgage costs but also highlighted the clear "potential for further global shocks".

Bailey admitted that “of course there are people that are experiencing very difficult times in this country” but said overall UK households with mortgages were not as stretched today as they were during the global financial crisis 15 years ago.

Bailey told MPs he hoped that the recent fall in the cost of mortgages would continue as investors continue to price in interest rate cuts. "Obviously we have had a big change in market interest rates in the last few months and so the cost of mortgages is coming down" he said.

“We've now had quite a big change in market interest rates in recent months, so that the cost of mortgages is coming down. 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. Rental inflation is currently around six per cent … I really hope that'll come down and lower interest rates obviously help that as well."

On the international front, the BoE is now monitoring the situation in the Red Sea closely, he said, after an escalation in attacks by Iran-backed Houthi rebels on large container ships in the critical trade route through the Suez Canal.

"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" Bailey said. "I think initially that will be an issue in the monetary policy world … We have to watch it very carefully, though, because it is obviously having an effect" he told the committee.

Breeden backed up the caution, warning that "uncertainty" included the macroeconomic environment, geopolitical tensions, credit risks and unemployment. She told MPs: "The risk environment at the moment feels particularly challenging. I do think the set of circumstances that we currently face are extraordinary.”