Bank of England Deputy Governor Warns Energy Shock Could Lift Rates
Dave Ramsden said prolonged energy-cost pressures could feed into domestic inflation after the central bank held Bank Rate at 3.75% on Sept. 16.
Deputy Governor Dave Ramsden warned that persistently high energy costs have increased inflation risks for the Bank of England and could eventually feed into domestic prices.
The Monetary Policy Committee voted 6-3 on Sept. 16 to hold Bank Rate at 3.75%. Ramsden was among the six members who supported the decision, while three members favored raising the rate to 4%.
“Overall, the risks to the inflation outlook have tilted more to the upside,” Ramsden said in the meeting minutes.
Brent crude had risen 36% from the period preceding the Bank’s July Monetary Policy Report, while U.K. wholesale gas prices had climbed 78%. At the close of business Sept. 14, Brent stood at $106 per barrel and wholesale gas at 207 pence per therm.
U.K. consumer price inflation reached 3.1% in August. The Bank estimated that direct energy effects accounted for about 0.7 percentage points of the 1.1-percentage-point overshoot above its 2% target.
Based on energy prices on Sept. 14, the Bank projected inflation at about 3.75% in the fourth quarter of 2026 and slightly above 4% in the first quarter of 2027.
Ramsden said the global inflation outlook had worsened even as domestic pressures remained relatively contained.
“I see the global inflationary picture as much more of an upside risk relative to that benign domestic picture,” he said during a Sept. 8 Treasury Committee hearing.
Crude prices were about 51% above pre-conflict levels, while diesel and jet fuel prices had risen 118% and 105%, respectively. U.K. private-sector regular wage growth was 2.8% in the second quarter, below the 3.2% level expected before the conflict.
The Bank said there was still little evidence that higher energy costs had produced second-round effects in wages and business pricing. Food inflation was also weaker than expected, but the risk of broader pass-through would increase if energy prices stayed high for longer.
Firms’ hedging, energy reserves and efforts to absorb higher costs through margins may have delayed the impact without eliminating it.
“Were upside pressures on the inflation outlook to continue to build, there could be a case for increasing Bank Rate,” Ramsden said.
The warning follows the Bank’s earlier discussion that high energy prices could prompt a rate increase. The next scheduled rate decision is Nov. 5, 2026.
