Energy Price Shock Triggers Rate Hike Fears for BoE

The Bank of England is likely to keep interest rates steady this week, despite rising energy prices and inflation concerns. Most economists polled by Reuters expect the BoE to hold its Bank Rate at 3.75% for the rest of the year, with only three out of nine Monetary Policy Committee members seen voting for a hike.

The recent jump in energy prices triggered by the Iran war is shifting opinion towards one of raising borrowing costs, following hikes by the European Central Bank and the U.S. Federal Reserve. The latter raised rates on Wednesday and signaled further increases ahead, citing stubborn inflation pressure driven in part by a jump in energy costs.

The UK's inflation rate has been above target for most of the last five years, with British natural gas and Brent crude futures leaping by almost 20% this month. This would push inflation further above the BoE's 2% target, which it has missed in all but three months of the last five years.

Some economists believe that the BoE will eventually have to raise rates to combat inflation, while others argue that a cooling labour market and elevated market interest rates are doing some of the central bank's work in tightening financial conditions.