Inflation remains stubbornly above the Bank of England’s 2% target, exposing a deepening internal debate between Governor Andrew Bailey and Chief Economist Huw Pill over the right course for monetary policy. With the Consumer Prices Index (CPI) stuck at 2.8% in May – unchanged from April and the lowest since March 2025 – and the Bank projecting a rise to around 3.2% later this year, the two senior officials have publicly diverged on whether the current stance risks complacency or is a necessary response to a weakening economy.
Bailey’s reassurance: patience in a softer economy
Andrew Bailey has insisted the Bank is “not complacent” about bringing down inflation, telling CNBC that he is “not happy” the rate remains above target. The Governor acknowledged that different views on the Monetary Policy Committee are healthy, describing Huw Pill’s position as “quite justified”. He stressed that the Bank’s approach must be judged in context, pointing to a “softer economy” and the legacy of a “negative supply shock” that has combined higher inflation with weaker activity.
Bailey argued that tolerating temporarily above-target inflation is “appropriate” given economic uncertainty, and warned against reacting too early, which could generate “undesirable volatility”. He indicated the Bank is in “no rush to react to higher oil prices”, noting that higher market borrowing rates have already tightened financial conditions. The Governor has previously suggested that inflation would currently be at the 2% target if not for the Middle East conflict, and he has firmly opposed any suggestion of raising the inflation target, emphasising the need to give households confidence in the Bank’s ability to lower the cost of living.
At the June 2026 meeting, Bailey was in the majority that voted 7-2 to keep interest rates at 3.75%. He described the persistence of above-target inflation as “frustrating”, but said the evidence suggests the UK will eventually return to target – albeit “frustratingly later than we thought”.
Pill’s warning: three percent is “problematic”
Huw Pill, the Bank’s chief economist, has taken a markedly different view. In remarks to the Press Association, he warned that the institution “should not be complacent” about the threat of CPI rising as a result of surging oil and gas prices amid the US-Israeli war with Iran. Pill regards inflation running one percentage point above target as “problematic”, arguing that the Bank’s mandate is clear: “inflation at 2% at all times”.
He has expressed concern that, after experiencing 11% inflation in October 2022, discussions might downplay 3% as “not so bad”. Pill believes that monetary policy has “not been restrictive enough over the last few years” and that interest rates may have been lowered too quickly. He warned that “higher energy prices of the past four months mean there’s already some inflationary pressure in the pipeline”, even after oil prices have eased from their peaks.
At the Bank’s last two meetings – April and June 2026 – Pill voted to increase interest rates from 3.75% to 4%. In April he was the sole dissenter; in June he was joined by external MPC member Megan Greene. Catherine L Mann voted to hold in June but published a hawkish rationale. Pill has defended his calls for higher rates, arguing that the Bank must guard against “underlying inflation dynamics” and that past monetary policy decisions may have “fuelled some of this strength and momentum”.
Megan Greene, who joined Pill in the June vote, has previously voted against rate cuts and stressed the need to address persistent inflation risks. She cited the negative supply shock from the Middle East conflict as a reason why the risk of inflation persistence had risen. In March she had affirmed she was not tempted to vote for a rate increase, but by June she clearly saw the case for tightening.
Economic context: oil, growth and the balancing act
The divide between Bailey and Pill plays out against a complex economic backdrop. Official figures show CPI inflation at 2.8% in May, with core inflation (excluding energy and food) at 2.6% and services inflation at 3.7%. The Bank’s April Monetary Policy Report projected CPI to reach 3.3% in the third quarter of 2026 and “rise somewhat further” in the fourth quarter, driven by higher energy and food costs. More recent forecasts suggest CPI could be 3.1% in Q2, 3.3% in Q3, and higher still in Q4.
The US-Israeli war with Iran has been a major external factor. Disruptions through the Strait of Hormuz – through which a significant portion of global oil and LNG flows – have caused sharp swings in oil prices. Brent crude futures briefly breached $100 a barrel before falling to around $79 just before the June MPC meeting, following announcements of a peace deal. Bailey has noted that oil prices are not now much higher than they were before the conflict began at the end of February. Nonetheless, some forecasts suggest that if Brent prices remain elevated through mid-year, global GDP growth for the first half of 2026 could be depressed by 0.6%.
The broader UK economy is showing signs of cooling. The labour market is weakening and economic momentum appears to be softening, which could help limit inflationary pressure. The OECD in April projected GDP growth of just 0.9% in 2026, with renewed inflationary pressures squeezing real incomes, before a pickup to 1.1% in 2027. Bailey has cited this “softer economy” as justification for caution, arguing that the negative supply shock forces the Bank to “make a judgment about what’s the right course back to target”.
The previous cycle of rate increases peaked at 5.25% in August 2023, and the Bank has since held rates at 3.75%. Under its mandate, if inflation moves more than one percentage point from the 2% target, the Governor must write an open letter to the Chancellor – a threshold that is now clearly in play. The internal disagreement between Bailey and Pill reflects a fundamental choice: whether to endure a prolonged period of above-target inflation to support a fragile economy, or to raise rates again to crush persistent price pressures before they become entrenched.
