BOE Officials Favor Rate Hikes Amid Soaring Energy Costs

Bank of England (BOE) officials are increasingly leaning towards raising interest rates in response to stubbornly high energy costs, according to Andrew Bailey, the BOE's chief. Speaking at an event in Oxford, Bailey stated that keeping rates on hold becomes harder the longer oil and gas prices remain elevated. He emphasized that policymakers cannot wait for full evidence of second-round effects before making a decision.

Despite the BOE holding Bank Rate at 3.75% last week with a 6 to 3 vote, the Monetary Policy Committee (MPC) signaled it could soon follow the Federal Reserve and European Central Bank in lifting borrowing costs. Concerns about the ongoing US-Iran conflict are building on the MPC, with Deputy Governors Clare Lombardelli and Sarah Breeden indicating they are moving towards supporting a hike.

Traders put the odds of a quarter-point hike at nearly 90% and see at least three additional moves in the coming 12 months. With oil above $100 a barrel, auto fuel is getting pricier, and industrial energy costs are soaring. For households, gas and electricity charges are poised to climb by around one-quarter when January's price cap update takes effect, a rise expected to lift CPI inflation to above 4% in 2027.