Andrew Bailey, governor of the Bank of England, said on Monday that recent financial turmoil would not stand in the way of the central bank controlling inflation with high interest rates.

In a speech at the London School of Economics, Bailey stressed that the UK financial system was “resilient, with robust capital and liquidity positions, and well placed to support the economy”.

He made no reference to the possibility that lending might be curtailed, instead reiterating the BoE’s position that interest rates would need to rise further if “any signs of persistent inflationary pressures” were detected.

“We have to be very alert . . . If they [the signs] become evident, further monetary tightening would be required,” he said.

In questions after his speech, Bailey insisted that nothing had recently happened in financial markets to make the nine members of the Monetary Policy Committee, who set the base rate, act in ways to sooth tensions.

“Monetary policy has to take into account credit conditions . . . and we do,” he said. “The key distinction is we have a financial stability policy that is ensuring financial stability and we did not have to sit down [at the recent MPC meeting] and say: ‘Do we need to use monetary policy to ensure financial stability?’”

Following the latest rise in interest rates to 4.25 per cent last week, Bailey said the BoE had not already decided that interest rates needed to increase further but noted that inflation of 10.4 per cent in February was “much too high”.

He stressed that the MPC would assess the “emerging evidence” before opting to lift rates again.

Bailey’s speech focused largely on the importance of considering the ability of the economy to supply goods and services without generating inflation when setting monetary policy.

He said the main problem the BoE faced, as the peak of the pandemic passed in 2021, was strong spending combined with a weaker than expected supply of labour.

Coupled with strains in global supply chains and Russia’s invasion of Ukraine, Bailey said this trend had caused inflation to hit double-digit rates not seen for 40 years.

Price rises were now waning with lower wholesale gas costs, he said, adding: “It is primarily for this reason that we expect to see a sharp fall in inflation during the course of this year, starting probably in a couple of months or so from now.”