Published:
Rate rise ‘increasingly likely’ if energy price shock persists, says BoE official
A Bank of England official says an additional rate rise is increasingly likely if the energy-price shock continues, citing limits to how much companies can absorb higher energy costs.
The Financial Times reports that a Bank of England official said a further rate rise is “increasingly likely” if the energy price shock persists. The implication is that the monetary policy reaction function depends not only on the level of energy prices, but also on whether the shock is absorbed without spilling into broader pricing and cost dynamics.
The story links this risk to companies’ ability to absorb high energy prices. If firms face limits in absorbing the costs, it raises the prospect of more persistent pressure through wages, margins, or consumer prices, which matters for how long inflation concerns remain central to the policy outlook.
For FX traders, the key channel is expectations: clearer risk of a higher BoE path tends to support GBP through higher relative interest-rate expectations, while also affecting credit and growth expectations if the same energy shock is seen as constraining activity. It can therefore influence both carry/performance expectations and the broader “growth versus inflation” balance.
What to watch next is whether subsequent energy-price developments translate into further evidence of pass-through into broader inflation measures, and whether BoE officials continue to frame policy around the persistence of the shock rather than its initial level.
Why this matters for FX
If energy shock persistence leads the BoE toward a higher-rate path, it can shift UK interest-rate expectations and financial conditions. That typically feeds through to GBP via the expected relative path of policy rates versus other central banks, and via risk premia if higher energy costs worsen cost pressures and weaken economic activity.