Energy Prices Threaten UK Interest Rate Stability

The Bank of England's governor, Andrew Bailey, has indicated that high energy prices will make it 'harder' for the central bank to maintain interest rates at their current levels.

In a speech in Oxford, Bailey said that as long as energy prices remain higher, it will be challenging for the Bank to keep rates steady, which currently stand at 3.75%.

The governor noted that the longer high energy prices persist, 'the harder it gets' to maintain this stance. He emphasized that the direct effects of the energy shock are being seen, but so far, there has been subdued pass-through in terms of inflation.

Bailey's comments come after a deputy governor at the Bank, Clare Lombardelli, said on Thursday that policy may need to tighten if elevated energy prices persist. She warned that unless there is particular weakness in the economy, indirect effects from high energy costs could drive up inflation expectations and wages.