Bailey Warns Iran War Could Push UK Inflation Above Target

Bank of England Governor Andrew Bailey warned that inflationary pressures are still affecting the UK economy and energy prices could rise further next year if the war in Iran continues. Speaking to MPs on Tuesday, Bailey said inflation risks were 'to the upside' and energy prices 'could be higher still' due to the conflict.

The conflict has triggered a surge in oil prices, with Brent crude climbing towards $100 a barrel after the Iran-aligned Houthi militia attacked several refineries in Saudi Arabia. The Bank of England has previously warned that inflation could jump to over 4% if oil prices hover around $100 per barrel for several months.

Bailey also expressed concern about supply chains for oil and gas production in the Middle East, which remain under threat as the US, Israel, and Iran have failed to agree on a peace deal. He stated that higher short-term bond yields were 'consistent' with a pessimistic view on risks facing the UK economy.

The Bank's Monetary Policy Committee will decide next week whether to hike interest rates, and Bailey insisted there was 'no secret plan' to do so in the coming months. However, he noted that traders had priced in a premium on top of expectations due to fears of prolonged trade disruption across the Strait of Hormuz.