Energy Prices Fuel Fears of Interest Rate Hike

The Bank of England's governor Andrew Bailey has warned that high energy prices will make it 'harder' to maintain current interest rates, indicating a potential increase in the future. This comes after Deputy Governor Clare Lombardelli stated that rate hikes are becoming increasingly likely due to elevated energy costs.

Bailey said that as long as energy prices remain higher, it will be more challenging for the Bank to keep interest rates at their current level of 3.75%. He noted that inflation is expected to rise to around 3.7% in the fourth quarter and 4.2% in the first quarter of 2027.

The energy price cap is set to increase by roughly 4% from next week, which will further contribute to rising inflation. Economists have predicted that the central bank may raise interest rates later this year to help bring inflation back down to its target level of 2%.