LONDON: Bank of England Governor Andrew Bailey signalled on Monday that interest rate-setters would focus on fighting inflation and would not be swayed unduly by worries about the health of the global banking system.

Some investors have argued that central banks should take into account the banking turmoil when setting interest rates.

On Sunday, Erik Nielsen, group chief economics advisor at UniCredit in London, said central banks should not separate monetary policy from financial stability at a time of heightened fears that banking woes could lead to a broad financial crisis.

Bailey on Monday pushed back against this view in a speech at the London School of Economics.

He said there were “big strains” in the global banking sector, but added that banks in Britain were resilient and able to support the economy.

“With the Financial Policy Committee on the case of securing financial stability, the Monetary Policy Committee can focus on its own important job of returning inflation to target,” Bailey said. As well as the BoE, the European Central Bank, US Federal Reserve and Swiss National Bank have all raised interest rates this month, despite the high-profile bank failures including Silicon Valley Bank and Credit Suisse.

Bailey repeated the BoE’s view that further monetary tightening would be required if signs of persistent inflationary pressure became evident.

“With this in mind, the MPC’s response will be firmly anchored in the emerging evidence,” Bailey said.

The BoE has tightened policy repeatedly since December 2021, in a cycle that has pushed Bank Rate from 0.1% to 4.25% today. Bailey said it would take time for the effects of this to be felt.

“When we look at the outlook for inflation today, we have to recognise that the full effect of the higher level of Bank Rate is still to work its way through financial markets and the real economy,” he said.