Bailey Warns Interest Rates May Need to Rise Amid Soaring Energy Prices

Bank of England Governor Andrew Bailey has warned that interest rates may need to rise despite a weakening economy. He stated that officials 'can't afford to wait' for clear evidence that soaring energy prices are feeding through the economy because it would be 'too late'. The Bank's Monetary Policy Committee, which sets interest rates, is scheduled to meet on November 5.

Bailey emphasized that policymakers will have to respond to persistently high energy costs. He added that if the shock of high energy prices is particularly in salient parts of the inflation basket, such as food and energy, there is a risk that it will have a bigger impact on consumers.

The Bank expects inflation to hit 4.2% at the start of next year, more than twice its 2% target. It also forecasts typical gas and electricity bills to jump 24% to above £2,000 by the start of 2027. Food prices are expected to continue rising into next year.

Investors are pricing in at least one rate rise before the end of this year as well as up to three rate increases in 2027. Morgan Stanley has predicted that the Bank will raise borrowing costs in November and again next February.