The MPC Faces Energy Shock and Inflation Risks Ahead of Key Rate Decision

The Bank of England's Monetary Policy Committee (MPC) is expected to keep interest rates unchanged at 3.75 per cent this week, but economists warn that policymakers may need to prepare for another increase due to rising energy prices.

Consumer price inflation rose to 2.9 per cent in July from 2.6 per cent in June, its highest level since March, with signs that underlying domestic price pressures were easing, except for energy markets which threaten to complicate the picture.

Economists at Pantheon Economics said the committee could 'toughen its language' this week 'to open up the possibility of a November hike if energy prices keep ramping up'. Thomas Pugh, chief economist at RSM UK, agreed that the MPC 'would need to respond' if higher inflation began feeding into wages and business prices.