Bank of England governor Andrew Bailey has warned the global economy is set for a “very big energy shock” that will lead to surging inflation, but said policymakers would not rush to hike interest rates.

Speaking at the International Monetary Fund (IMF) spring meeting in Washington DC, Mr Bailey told the BBC the Bank is facing a “very, very difficult” decision on rates at its meeting on April 30.

The Middle East conflict has sent oil prices surging by around 60% since the start of the year, at one stage hitting nearly 120 US dollars a barrel, which is pushing up fuel and energy costs.

This is expected to feed through to wider prices, with forecasts for UK inflation to jump higher in the coming months and Britain’s growth outlook sharply downgraded.

But official figures on Thursday, which were released after Mr Bailey’s comments, showed the UK economy was far stronger than expected at the start of the year, with growth of 0.5% in February following upwardly revised expansion of 0.1% in January.

Experts said while welcome, UK activity is still set to slow sharply as higher energy prices weigh on spending and hamper growth.

Mr Bailey told the BBC: “There’s really difficult judgments to be made.

“We’re not going to rush to judgments on those things, because there are a lot of uncertainties around this, not just how it’s going to play out, but also how it’s going to pass through into the UK economy.”

The IMF’s economic outlook report earlier this week showed the UK facing the biggest downgrade to growth among the G7 group of countries, with 0.8% forecast for 2026, down sharply from the 1.3% predicted in January.

The influential financial body said the spike in energy prices caused by the war will help push UK inflation towards 4% – double the Bank of England’s target.

But the IMF cautioned central banks about making hasty decisions on interest rates.

The Bank of England had previously been expected to cut rates further this year, down from 3.75% currently, but the predicted inflation surge caused by the Iran war has led to forecasts that hikes could be on the way.

Mr Bailey said the Bank is taking the IMF’s “serious advice” into account.

On fears over supply shortages caused by the Iran war disruption and blockage of the crucial Strait of Hormuz shipping route, Mr Bailey said there is “a certain amount of resilience in the system” but that will only last so long.

He added: “The faster there is a resolution to this situation – I particularly mean in terms of the supply of energy coming out of the Gulf – the easier and better the outcome will be.

“That’s really critical at this moment.”

Asian stocks edged higher on Thursday, as investor sentiments were lifted by hopes of United States and Iran extending their ceasefire and moving a step closer to reopening the crucial Strait of Hormuz. The gains were led by Japan’s Nikkei, which was up 1,214 points or 2% to 59,348. In South Korea, Kospi jumped 1.7% to 6,195. Hang Seng Index of Hong Kong, followed the rally, adding, 360 points. Shanghai and Shenzhen were also trading in green, up 0.5% and 1%. Meanwhile, Singapore’s benchmark STI recorded a marginal dip, down 1 point as of 10:30 am IST.The broader rally across the region came after a strong session on Wall Street, where benchmark indices touched all-time highs. While S&P 500 closed above the 7,000 mark, Nasdaq ended higher than 24,000.Attention is pinned on diplomatic efforts to end the Middle East conflict, which is now nearing its seventh week. Officials from Washington and Tehran are expected to convene in Islamabad for a second round of talks, with both sides exploring a pathway to de-escalation.White House Press Secretary Karoline Leavitt said that further negotiations “would very likely” take place in the Pakistani capital. “Those discussions are being had,” she noted, adding that “we feel good about the prospects of a deal”.US Vice President JD Vance, who led the earlier round of negotiations, described the proposal on the table as a “grand bargain” aimed at ending the conflict.A Pakistani delegation has arrived in Tehran carrying a fresh communication from Washington, after US President Donald Trump indicated talks could restart this week. An Iranian foreign ministry spokesman said “several messages” had been exchanged through Islamabad since discussions concluded on Sunday.However, tensions have not eased entirely as Iran warned it could extend disruptions beyond the Gulf by shutting down the Red Sea and the Sea of Oman unless the United States removes a naval blockade imposed on its ports after last weekend’s failed negotiations.On the economic front, IMF Managing Director Kristalina Georgieva cautioned that “tough times ahead” could follow if the conflict continues and energy prices remain high, adding that inflation risks may begin to affect food costs.In commodities, oil prices remained largely unchanged and stayed below $100 per barrel, as traders continued to watch developments around the Strait of Hormuz, a crucial route for around a fifth of global oil and gas supplies that has effectively been closed by Iran.