Bailey Warns High Energy Prices Will Make Interest Rate Hike Harder

Andrew Bailey, Governor of the Bank of England, has warned that high energy prices will make it harder for the central bank to maintain interest rates at their current level. Speaking in Oxford on Friday, Bailey stated that while the Bank has not yet increased interest rates, it's becoming increasingly difficult to keep them steady due to rising energy costs.

The comments come after a deputy governor at the Bank, Clare Lombardelli, expressed similar concerns about the impact of high energy prices on inflation. Lombardelli had said that unless there is clear evidence of disinflation or weaker activity, policy is likely to need to tighten if elevated energy prices persist.

According to Bailey, the longer high energy prices remain, the harder it gets for the Bank to maintain its current stance on interest rates. He also pointed out that inflation is predicted to increase to around 3.7% in the fourth quarter of this year and 4.2% in the first quarter of 2027.

The energy price cap is set to rise by roughly 4% next week, which could further exacerbate inflationary pressures. Economists have widely predicted that the central bank will increase interest rates later this year to help bring inflation down to its 2% target level.