The Bank of England has held interest rates at their current rate of 3.75% for the sixth time in a row but said they were likely to rise if high energy prices persist.
The US-Israel war with Iran has disrupted global energy supplies leading to a sharp increase in petrol and diesel prices and an uptick in inflation.
But Bank of England governor Andrew Bailey said energy price volatility made it more likely that interest rates would rise.
The Bank also announced it was slowing its sales of UK government debt, prompting an easing in the UK’s long-term borrowing costs.
The Bank of England’s main interest rate is a crucial benchmark for banks and other lenders in setting interest rates for individuals and businesses who want to borrow or save money. Higher rates can help dampen inflationary pressures, while lower rates can help boost spending and investment.
The UK’s central bank aims to keep inflation at a target of 2%, but it has been above that rate for nearly two years, with inflation hitting 3.1% in August.
On Thursday the Bank of England raised its forecast for inflation predicting it would be “slightly above 4%” at the start of next year. It warned that the price cap on household gas and electricity bills for January was “now expected to rise substantially further”.
Speaking after the Bank’s decision, Bailey said the direct impact of higher energy prices was clear, but officials were still assessing how far those costs would feed through into wider inflation across the economy.
