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Bank of England warns Iran war could lift UK inflation above 4%

Governor Andrew Bailey said the conflict has pushed energy prices higher and could sustain inflation risks into next year if it continues.

Reported · Written up by our desk · Economy

Bank of England governor Andrew Bailey warned that the ongoing war in Iran could add to inflation pressures in the UK, potentially lifting inflation above 4% if the conflict continues.

Speaking to MPs on Tuesday, Bailey said inflation risks are “to the upside” and that energy prices “could be higher still” due to the conflict. He also cautioned that higher energy costs and volatility are feeding through into financial markets.

Oil prices have risen sharply after Iran blockaded the Strait of Hormuz, reducing supply from major producers. The price impact was also reinforced when the Iran-aligned Houthi militia attacked refineries in Saudi Arabia, contributing to halts in some operations.

Bailey further said higher short term bond yields, which are set by traders, are consistent with a pessimistic view of risks facing the UK economy, and he referenced the possibility of three interest rate hikes over the next 12 months. He emphasized there was “no secret plan” to raise rates in the coming months, according to OilPrice.

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