Energy Shock Threatens UK Price Surge, Bank of England Warns

Bank of England Governor Andrew Bailey said on April 18, 2024, that the world economy is facing a major energy shock that is likely to push prices higher. He made the remarks in Washington during the International Monetary Fund (IMF) meeting, as oil and gas costs have risen and are expected to feed into inflation.

Bailey said the Bank of England is not planning to move quickly on interest rates, describing the situation as complicated. He pointed to the challenge for central banks when energy prices rise: inflation pressures would normally argue for tighter policy to restrain demand, but weaker growth could instead call for lower rates to support borrowing and spending.

The Bank of England also referenced the IMF’s guidance against raising rates too early. Officials said the effect of the Middle East conflict on the UK economy and on inflation is still unfolding, and that meaningful data has not yet appeared.

Bailey highlighted the UK’s heavy dependence on gas, which he said leaves the country especially exposed to swings in energy prices. He added that how long the Middle East conflict lasts will be a key factor shaping the longer-term economic outcome.

Alongside the rate message, the Bank of England stressed the value of policy stability, covering both monetary and fiscal settings. The aim, officials said, is to manage uncertainty and maintain a predictable environment for households and businesses as energy-driven price pressures develop.