Energy Prices to Force Higher Interest Rates, Warns Bank of England Governor

Andrew Bailey, the governor of the Bank of England, warned that high energy prices will make it 'harder' to maintain current interest rates and avoid an increase. This comes as inflation is expected to rise due to higher energy costs, with households facing a roughly 4% hike in the energy price cap from next week.

The Bank has predicted that inflation will reach around 3.7% by the end of this year and 4.2% in early 2027. Bailey indicated that it may become increasingly difficult to keep interest rates at their current level, particularly if energy prices 'remain higher' due to the conflict in the Middle East.

Earlier this month, Bailey was part of a six-to-three majority that voted to maintain UK interest rates at 3.75%. On Friday, he told an audience in Oxford that high energy prices are already having a direct impact and that it will become harder to maintain current interest rates as time passes.