UK Inflation Risks Soar as Iran War Threatens Energy Prices
Bank of England Governor Andrew Bailey has warned that inflationary pressures in the UK economy are still high and could rise further if the war in Iran continues. Speaking to MPs on Tuesday, Bailey said energy prices could be higher due to the conflict, which has triggered a surge in oil prices and stoked global inflation fears.
The Bank of England chief noted that the conflict is causing volatility in energy prices, which has been feeding through into financial markets. Energy costs have risen sharply after Iran blockaded the Strait of Hormuz, choking off oil supply from major producers.
Brent crude prices climbed toward $100 a barrel on Tuesday after an attack by the Iran-aligned Houthi militia caused a halt to some operations in Saudi Arabia. Bailey warned that higher short-term bond yields suggest there could be three interest rate hikes over the next 12 months, which is consistent with a pessimistic view on risks facing the UK economy.
The Bank's Monetary Policy Committee will decide whether to hike interest rates next week. Bailey 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 to a peace deal.