Energy Prices and Budget Loom Large for Interest Rates

The Bank of England is unlikely to hike interest rates tomorrow despite soft labour market data and rising inflation, according to William Nixon.

Nixon, a Senior Research Fellow at Policy Exchange and former economist, notes that the central bank will be monitoring two key risks: global energy prices and the upcoming Budget. Global oil prices have surged by 20% since August, with the Brent benchmark trading above $100 a barrel for the first time since May.

This increase could lead to UK households' combined energy bills rising by 20-25% in early 2027, adding around 1ppt to headline inflation. Businesses' costs will also be affected, potentially leading to 'second round effects' on inflation as firms increase their retail prices to maintain profit margins.