Bailey Warns UK Inflation Could Soar as Brent Crude Nears $100 a Barrel
Bank of England Governor Andrew Bailey warned that inflationary pressures are buffeting the UK economy and energy prices could rise further next year if the war in Iran continues. Speaking to MPs, Bailey said inflation risks are 'to the upside' and energy prices 'could be higher still' due to the conflict.
The conflict has triggered a surge in oil prices and stoked inflation fears globally. Brent crude prices climbed toward $100 a barrel after the Iran-aligned Houthi militia attacked several refineries in Saudi Arabia, causing a halt to some operations.
Bailey also raised 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 on a peace deal. In its last report from the summer, officials at the Bank warned that inflation could jump to over four per cent, double the Bank's target rate, in the scenario where oil prices hover around $100 per barrel for several months.
The governor also pointed out that pricing on UK government bond yields in markets is a 'reflection' of fears that inflation could spike. He added that traders have priced in a premium on top of expectations to cover the risks of prolonged trade disruption across the Strait of Hormuz, which could lead to higher prices for households.
Bailey said high levels of youth unemployment at a rate of around 16 per cent are 'frankly concerning', although a slowdown in the jobs market could soften price pressures in the economy.