Intro
Bank of England Governor Andrew Bailey reads Fed Chair Kevin Warsh's speech on forward guidance, explains why muted second-round effects let the Bank watch UK inflation rather than move on it, and sets out the sequencing question that decides whether AI pushes prices up or down.
Guest: Andrew Bailey, Governor of the Bank of England
Published: 28 August 2026 on Bloomberg Talks
Listen on Omny | 11 min
Key Takeaways
Forward guidance fails when it stops being conditional
"There is always uncertainty and therefore our decisions are always conditional."
The danger, which Bailey says Warsh identified, is unconditional statements about policy
Second-round effects from the energy shocks look subdued, which buys time rather than a decision
The committee comes back to it at every meeting, and he will promise nothing beyond that
A Fed hike does not oblige the Bank of England to follow
"We don't say, well, they've done this, so we'll have to do it as well."
The UK needs faster growth, and Bailey wants AI and robotics to supply it
Balance sheet management is where politicization pressure actually bites
A decision comes in September; he will not prejudge it
Whether AI is inflationary depends entirely on which shock arrives first
Rain, Swallowed Mountains, and What the Governor Wants to Take Home
The interview opens after a walk in heavy rain, with the show noting the group seemed unfazed while it just kept pouring on them
Bailey wanted to export the weather: "I'm just keen to take some of the rain back to Britain", though he thinks it has started raining in Britain now
The show said the mountains had been "completely swallowed", and that his colleague Catherine Mann had the same idea about taking some of it back to England
What Bailey Took From Kevin Warsh's Speech
Asked whether Warsh's speech carried the message he had hoped for, Bailey opened with the boundary: "it's a cardinal rule that we don't comment on each other's monetary policy"
He then commended it twice inside one answer: "I thought it was a speech of real substance"
The two things he singled out were the framework of monetary policy and forward guidance: "I think he made very important points about forward guidance and how he's thinking about it"
Forward Guidance Is a Problem When It Turns Unconditional
The show put Warsh's argument to him — that forward guidance is somewhat antiquated for a more complicated moment, that it can confuse and complicate monetary policy, and that it might have led to the 2021 delay in hiking rates to combat inflation
Bailey drew a distinction rather than answering yes or no: "Monetary policy, by its nature, is in the business of making policy forwards", because "We can't influence what inflation is going to be tomorrow."
"There is always uncertainty and therefore our decisions are always conditional."
He said there is even greater uncertainty at the moment, particularly about the immediate situation
Where he agrees with Warsh is on the failure mode — guidance "tends towards making unconditional statements about policy. And I think that's the problem, and I think that's the danger, and I agree with him"
On whether the tool is out of date he would go no further than calling it a good question
On 2021 he answered as a participant, describing himself as "a veteran of that period": COVID was such a huge shock that there was huge demand on central banks to step forward and put the tools to work
That is not the situation now: "We're not in that world now."
The UK Has a Different Growth Story, and Bailey Wants AI to Fix It
The show asked whether UK inflation is as broad-based as the components of PCE Warsh described in the US, or a different backdrop given AI investment and a very different growth picture
Bailey accepted the difference and turned it into a productivity argument: "it is a different growth story", and "we need to see faster growth in the U.K. We need to see faster productivity growth."
"I think AI and robotics are a critical source of that."
He applied Warsh's own test to the UK: whether underlying inflation is going back to target, and over what period of time
The Bank is watching the second-round effects of the energy shocks, and asking whether the return to target is sustainable and consistent with the inflation target
His read so far is that they are contained: "I think we're seeing quite subdued second-round effects", alongside "a softening labour market for some time now"
That buys observation time, not a settled call: "we can watch this situation for the moment, but every meeting we have, we have to come back to it"
A Fed Hike Would Not Force the Bank's Hand
The show noted markets currently expect the Fed to hike, and asked whether currency differentials and competition for capital pressure the Bank to match it
Bailey pointed back to Warsh's framing — whatever the Fed does, it will do based on its remit and its responsibilities in respect to the US, and for reasons to do with the US
The Bank's reply is not a reflex: "We don't say, well, they've done this, so we'll have to do it as well."
He accepted the open-economy channel, since the effects of the rest of the world land on the UK inflation outlook
The question the Bank asks instead is "what's the overall impact of all of this on our inflation situation?"
Nine Members, a Plurality, and What Bernanke Changed
The show contrasted the Fed's run of unanimous decisions with the Bank's split votes — "four people voted for this. Three people said they were nuts. One person said, why am I even here? And then there was a big brawl." — and asked what advice Bailey would give Warsh on handling that kind of division
Bailey treated the split as the design rather than the defect: "the whole reason we have nine members on the committee is to have a plurality, to have different views, to have deliberation, which is absolutely key to this process"
Deliberation is the part he stressed — the committee sits in a room "for more hours than we care to remember" before reaching a conclusion
The transparency changes followed work Ben Bernanke did for the Bank, including the paragraphs now giving the individual views of each member
The monetary policy statement itself stays the view of the majority, which he says clarifies the division of views
His own role comes at the end of it: he encourages the plurality, and "then I have to try and steer it to a conclusion"
Not a Hawk, Not a Dove
The show said it had heard from a lot of hawks that day, naming Catherine Mann, who describes herself as on the hawkish side, and Beth Hammack of the Cleveland Fed, who had said earlier that morning that inflation has "been too high for too long"
It asked whether Bailey feels in a minority for wanting to watch rather than act, so as not to torpedo the economy before it has a chance to right-size
He rejected the label outright: "I don't characterize myself as a hawk or dove."
He added that the majority of the committee has been in the same place he is
He would not promise the muted second-round effects last — that is the forward guidance point applied to himself: "I can't give you any promise that that will continue."
What he would commit to is the destination: "our job is to get inflation back to target. We will do that."
The committee weighs not only the path back but how long it takes, and whether that is consistent with price stability
Debt, the Balance Sheet, and the Long-Run Bills
Asked whether decades of low rates and accumulated government debt expose central banks to accusations of politicization, given the direct effect of rate decisions on government budgets, Bailey named the pressure point
"I think probably the most complicated area for that is balance sheet management."
Balance sheets have been coming down, and a decision arrives in September that he would not front-run: "I'm not going to prejudge what that decision is."
He wants two things from a balance sheet — room and less risk: scope "to do whatever we need to do in the future", and "it is important also that we reduce the interest rate risk on our balance sheet"
He put the debt question inside two long-run challenges facing developed economies. The first: "I think ageing populations is a big long-run challenge."
The second is military spending — he called "the turnaround of the post-Cold War defence expenditure dividend" a very big challenge, and one that has now gone into reverse
Neither is a direct challenge for monetary policy, but both feed economic policy, fiscal policy and debt levels
The long-run projections are the part he treats as settled: they say these are issues that will have to be seriously managed
Why the G20 Landed So Close, in Time and in Place
The show observed that fewer global central bankers were in attendance because many had to get to Asheville for the G20 meeting, which Bailey was leaving for the next morning, and read the proximity of the two events as a sign the fiscal backdrop can no longer be separated from monetary policy as cleanly as 20 years ago
Bailey declined the reading and gave a calendar answer: the G20 meetings normally fall in February and July, and this year the second one is at the end of August
He treated the overlap as a convenience: "in some ways, this works quite well because we're in the U.S., so here we are", cutting down on the extensive travel the job involves
"I wouldn't really interpret it any more strongly than that, really, in terms of the meetings."
Whether AI Arrives as a Demand Shock or a Supply Shock
The show asked whether Bailey sees AI as more disinflationary than inflationary in the UK, and whether it looks inflationary in the short term the way it does in the US
He made it a question of sequencing, not of direction: "there will be both demand shocks and supply shocks from AI"
He reached for history and apologized for it — "economic historian in me always comes out at this point, I'm sorry" — noting that past general purpose technology innovations do not have the same pattern
The order decides the answer: "if we get the demand shocks ahead of the supply shocks, then you will get pressure on inflation upwards", and those can come through in asset markets
"If you get the supply shocks first, you'll get the opposite."
Bailey's bottom line is that the Bank can watch UK inflation for now because the second-round effects look subdued, but he will not turn that into a promise — the committee returns to it every meeting, and getting inflation back to target is the only thing he will state without a condition attached.
Products, Companies & Tools Mentioned
Bank of England (Bailey's own institution: a nine-member committee built for plurality, a balance sheet being reduced with a decision due in September, and a read that second-round effects from the energy shocks are so far subdued)
Federal Reserve (Kevin Warsh's speech is the spine of the interview; Bailey commends it, agrees with its warning about unconditional guidance, and says the Fed will act on its own remit and the UK on its own)
Federal Reserve Bank of Cleveland (Beth Hammack, cited by the show as another of the day's hawks, for saying inflation has been too high for too long)
G20 (Meeting in Asheville, which Bailey was leaving for the next morning; he attributes the unusual end-of-August timing to a shifted cycle rather than to anything about fiscal and monetary policy converging)
Books & Resources Mentioned
Kevin Warsh's speech (Bailey commends it as "a speech of real substance", singling out the points on the framework of monetary policy and on forward guidance)
The work Ben Bernanke did for the Bank of England (The source of the Bank's transparency innovations, including the paragraphs giving each committee member's individual view)
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