Interest rates are likely to rise this year as the Bank of England attempts to curb inflation following a “significant energy price shock” from the Iran war.<\/p>\n
The majority of the Bank’s rate-setters voted to keep borrowing costs at 3.75% in April, but signalled they would act “forcefully” should oil prices reach and remain at $130 a barrel for a number of months.<\/p>\n
The price of Brent crude hit $126 on Thursday following reports the US may resume attacks on Iran.<\/p>\n
The governor of the Bank of England, Andrew Bailey, said: “The war in the Middle East is causing inflation to rise again this year.”<\/p>\n
“We’ll continue to monitor the situation and its impact on the UK economy very closely,” Bailey added.<\/p>\n
“Whatever happens, our job is to make sure that inflation gets back to the 2% target after the initial impact of the war on energy prices has passed.”<\/p>\n
Because of “uncertainty around the severity and duration” of the war, the Bank considered a range of scenarios to determine how it will react in the coming months.<\/p>\n
In the most likely scenario, inflation would average 3.3% for this year. But if oil remains elevated and gas prices soar, it could reach as much as 4.5% for 2026 \u2013 more than twice the Bank’s target.<\/p>\n
UK economic growth is expected to be lacklustre this year \u2013 expanding by 0.8% in the best case or by 0.7% if conditions worsen.<\/p>\n
However, the UK is forecast to avoid a technical recession, which is defined as two consecutive three-month periods of contraction.<\/p>\n Get our flagship newsletter with all the headlines you need to start the day. Sign up here.<\/a><\/p>\n<\/div>\n<\/div>
<\/div>\n<\/div>