Bank of England Sounds Inflation Alarm Amid Middle East Tensions

The Bank of England has sounded an inflation alarm, warning that prolonged conflict in the Middle East may require tighter monetary policy. The central bank held interest rates unchanged at 3.75% on Thursday, but three members voted for a rise to 4%, in line with economists' median forecast.

According to Governor Andrew Bailey, higher global energy costs have had a limited effect on price- and wage-setting in the UK so far, but this could change as volatility persists. Bailey stated, 'So far, higher global energy costs have had a limited effect on price- and wage-setting in the UK. But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank Rate to ensure that inflation falls back to our 2% target.'

The Bank of England expects British inflation to top 4% early next year, according to its updated economic forecasts. Inflation has surpassed the 2% target for all but three months out of the last five years.