Bank outlines three energy price scenarios, reflecting Iran war uncertaintypublished at 12:13 BST
Faisal Islam
Economics editor, reporting from the Bank
The Bank reflected the uncertainty over the war in the Middle East by outlining three scenarios for energy prices.
Its experts seem to endorse a modest rate rise or two even in a more benign scenario, with energy prices moderating from here.
The Bank’s chief economist Huw Pill voted for a rise this month, alone. Other members said the Bank should wait to see the extent of the inflationary shock.
In an adverse scenario with oil above $120 a barrel for the rest of the year and much higher natural gas prices, as many as six rate rises to 5.5% are hinted at, by the end of the year, to try to manage inflation down from a forecast 6%. The economy would be much weaker in such a scenario and unemployment higher.
The oil price was already around this range this morning, after President Trump indicated the US blockade of Iranian ships could last months longer.
It is the relatively modest reaction of gas prices, for example compared with the Ukraine crisis two years ago, that has helped the Bank hold off rate rises.
It also said that the pass through of inflation to wages – which can become a reinforcing upward spiral – might be limited by the fact that most pay deals for the year were concluded before the start of this energy shock
