The Bank of England may increase interest rates this year due to rising energy prices linked to the conflict in the Middle East. Analysts warn that disruptions in oil and gas supply could lead to higher inflation, complicating the Bank’s plans to lower borrowing costs. The National Institute for Economic and Social Research predicts that a temporary spike in oil prices could add 0.3 percentage points to inflation, while Rabobank said it does not forecast interest rate cuts this year as higher oil prices would “feed through quickly” into inflation. Ben Zaranko, a director at the Institute for Fiscal Studies, suggested an interest rate rise above 4% could not be ruled out. ING economist James Smith, however, said there is a “distinct possibility” that the Bank could cut rates this month if tensions in the Middle East were to “rapidly de-escalate.”
