- Bank of England Governor Andrew Bailey has warned that prolonged high energy prices will make it increasingly difficult to keep interest rates at their current level of 3.75% and avoid a future hike.
- His comments follow statements from deputy governor Clare Lombardelli, who noted that monetary policy is 'increasingly likely' to tighten if elevated energy prices driven by Middle East conflicts persist.
- Mr Bailey was previously part of the 6-3 majority that voted to hold interest rates, but he highlighted that while pass-through effects are currently subdued, prolonged energy shocks present significant risks.
- Inflation is forecasted by the Bank to climb to roughly 3.7% in the fourth quarter of this year and 4.2% in the first quarter of 2027, amplified by an upcoming 4% increase in the household energy price cap.
- Economists broadly expect the central bank to raise interest rates later this year in an effort to curb rising inflationary pressures and return to its official 2% target.
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