BoE Governor Bailey Signals Tolerance for Above-Target Inflation at Reykjavik Conference

Bank of England Governor Andrew Bailey delivered a significant speech at the Reykjavik 2026 international economic conference on 29 May 2026, signalling that the Bank could temporarily tolerate inflation running above its 2% target in order to support the UK's weak economy, provided second-round inflationary effects did not emerge. Bailey cited elevated uncertainty from global energy price volatility — particularly the impact of the Iran conflict on oil and gas supply chains — as the primary driver of the Bank's cautious stance. He noted the Bank had already tightened monetary conditions effectively by removing market expectations for near-term rate cuts. UK CPI inflation stood at 2.8% in April 2026 (the most recent ONS data), down from 3.3% in March but still above the 2% target, with the next Monetary Policy Committee (MPC) rate decision scheduled for 18 June 2026. Bailey's Reykjavik intervention signalled the Bank was prioritising economic support over strict inflation targeting in the current global environment, putting a June rate cut more firmly on the market's radar. The speech came at a politically sensitive moment with Parliament due to return from Whitsun Recess on 1 June and the Starmer government's economic credibility under pressure from the ongoing Labour leadership uncertainty.