Bailey Downplays UK Energy Price Shock Impact on Inflation

Bank of England Governor Andrew Bailey has downplayed the impact of energy price shocks on inflation in the UK, stating that their effects have been 'quite subdued'. According to data released last month, UK CPI inflation rose to 3.1% in August, up from 2.9% in July and 2.6% in June, primarily driven by motor fuel prices.

The 75% of the energy shock that has already passed through to consumer prices is not a concern for monetary policy, Bailey said. The focus lies on whether higher input costs will start showing up in other areas, such as restaurant menus or rent negotiations.

A softer labor market and direct energy effects projected to add approximately 0.4 percentage points to CPI inflation by the end of 2026 suggest that inflation is likely to peak at around 3.2% later this year before drifting back toward the 2% target, according to the BoE's July report.