Energy Price Spike Sparks Inflation Fears and Interest Rate Hike Worries

The Bank of England's monthly survey of firms' price expectations, known as the Decision Makers' Panel, has shown that inflation expectations have risen amid concerns over energy prices and potential interest rate hikes. The results, released on Friday, indicate that one-year ahead CPI inflation expectations rose from 3.1 per cent in August to 3.3 per cent last month.

The survey found that a majority of firms believe higher energy prices are having a significant impact on their price-setting, while also citing uncertainty levels as very high. This has led some policymakers to caution that interest rates may need to be raised from 3.75 per cent if global energy prices remain elevated.

With the Brent crude oil price hovering around $100 per barrel, up over 40 per cent since before the war in late February, inflation could top four per cent in the early months of next year, according to the Bank's main forecast.