• The longer the Middle East conflict continues, the worse the impact will become
• Where we go from here will depend on the size and duration of energy price shock
• Monetary policy cannot stop higher energy prices from affecting UK economy, inflation
• Second-round effects build more slowly than direct and indirect effects
• That makes it a difficult judgement call in navigating monetary policy
• Policy setting cannot wait for conclusive evidence of second-round effects before responding
• Given the sheer unpredictability, there’s a good case for holding rates now
• But must recognise that a long spike in energy prices could lead to a higher bank rate

The headline comment is one that everyone knows but one that is hardly said. If anything, Bailey being explicit about that signals that the central bank very much wants to favour optionality for as long as they can. That so as to gather more certainty on how the Middle East conflict will play out.

However, they can only keep doing that for so long as they can’t lag behind the curve in reacting to potential second-round effects on inflation. And the risk of that grows larger each and every day as the war continues to drag on and the Strait of Hormuz remains closed.

What is interesting though is the scenario analysis on oil and gas prices that they are putting forward in estimating how to go about things.