Bank of England says rates could rise as Iran war fuels inflation
SkimNews Take
The Bank of England's focus on rate hikes to combat war-driven inflation signals a shift from demand-side to supply-side economic shocks, where monetary policy has limited direct impact on the root cause.
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- Bank of England' worst‑case scenario (Scenario C) projects oil above $120 per barrel for the year, inflation peaking at 6.2%, and six rate hikes to 5.5%.
- Oil price hit $126 per barrel, the highest level in four years.
- Governor Andrew Bailey warned that the energy price shock from the Iran war is a “very big shock” and stressed its disproportionate impact on lower‑income households.
- Huw Pill was the sole Monetary Policy Committee member to vote for a rate rise in April, while the other eight members voted to hold rates.
- Inflation rose to 3.3% in the year to March, above the BoE’s 2% target.
Why it matters: UK households, especially low‑income earners, will face higher borrowing costs as the BoE lifts rates to 5.5% (from 3.75%) and inflation peaks at 6.2%, curbing spending and slowing growth.
