Energy Shock Sparks Rate Hike Warning from Bank of England Deputy Governor

Bank of England Deputy Governor Dave Ramsden has warned that persistently high energy costs pose an increased risk to inflation, potentially prompting a rate increase. Speaking at the Sept. 8 Treasury Committee hearing, Ramsden stated that the global inflation outlook had worsened even as domestic pressures remained relatively contained.

The Bank of England voted 6-3 on Sept. 16 to maintain its current interest rate of 3.75%, with three members favoring a hike to 4%. Ramsden was among the six who supported the decision, citing increased inflation risks due to rising energy costs.

U.K. consumer price inflation reached 3.1% in August, with direct energy effects accounting for about 0.7 percentage points of the overshoot above its 2% target. The Bank projected inflation at around 3.75% by the end of 2026 and slightly above 4% in early 2027.

Ramsden emphasized that even though domestic pressures remain contained, global inflationary pressures have increased significantly. Brent crude has risen 36% from July's Monetary Policy Report period, while U.K. wholesale gas prices have climbed 78%. The Bank noted little evidence of second-round effects in wages and business pricing, but warned that the risk would increase if energy prices stay high for longer.