ContextSpeech by Bank of England Governor Andrew Bailey on financial resilience; the Bank keeps UK prices and the financial system stable while energy shocks and debt test both.
Why it mattersThe Bank of England governor argues that frequent supply shocks, weaker growth and leveraged bond investors make stability harder to keep.
- Repeated supply shocks push inflation and output apart.
- Weaker growth and higher debt strain public finances.
- Leveraged investors make bond markets more fragile.
- Raise sustainable growth through productivity.
- Keep monetary and fiscal frameworks credible.
- Make core markets able to absorb shocks.
Read the speech summary
1. Resilient so far
Bank of England Governor Andrew Bailey said the financial system has held up despite the Middle East conflict, high bond yields and new AI-related exposures, crediting post-2008 reforms often criticised as burdensome: banks are well capitalised and markets have kept functioning. Yet slower growth, one supply shock after another and a different make-up of markets leave no room for complacency.
2. A policy dilemma
Slower productivity and a rapid series of shocks (Covid, Ukraine, the Middle East) may be the new normal in a more geopolitical world. Supply shocks raise inflation while cutting output; central banks can look through them only if expectations stay anchored, which is harder after years of high inflation. Rate rises can then coincide with falling incomes and asset prices, and repeated shocks push public debt up, so governments find it harder to cushion downturns.
3. Fragile bond markets and the response
Government bonds are now held more by leveraged, price-sensitive investors than by long-term holders, so forced selling can spread across countries and assets. He proposes faster sustainable growth, including safely deployed AI, whose financing also carries risk; credible frameworks, with a firm inflation commitment, clear explanation of policy under different scenarios and credible fiscal rules; and sturdier core markets through more central clearing, minimum haircuts and better risk management.