Bailey Warns Energy Prices Will Sink UK Interest Rates

Bank of England Governor Andrew Bailey has warned that high energy prices will make it increasingly difficult to maintain interest rates at their current levels. Speaking in Oxford, Bailey indicated that if energy prices 'remain higher' amid pressure linked to the conflict in the Middle East, the Bank may have to increase interest rates.

This comes on the heels of a warning from Deputy Governor Clare Lombardelli, who said that policy is becoming 'increasingly likely' to tighten if elevated energy prices persist. Bailey and Lombardelli's comments suggest that the central bank is preparing for a potential rate hike in response to rising inflation, which is predicted to reach 3.7% in the fourth quarter of this year.

The Bank has previously maintained interest rates at 3.75%, but Bailey acknowledged that it will become harder to maintain this stance as energy prices remain high. Inflation is expected to continue rising due to higher energy costs, with households facing a roughly 4% increase in the energy price cap from next week.