BoE's Bailey warns Iran war and weather may push UK inflation higher

September 9, 2026 at 09:57 AM2 min

This digest was compiled by AI from multiple sources — links to the originals are below.

Bank of England Governor Andrew Bailey warned on Tuesday that the war in Iran and extreme weather could push UK inflation higher. He said risks to inflation are to the upside, with energy prices potentially rising further. His comments came as the UK government faces its highest borrowing costs in about 30 years.

Key Facts

Bailey said inflation risks are "to the upside" and energy prices "could be higher still" due to the Iran conflict.
Brent crude prices climbed toward $100 a barrel on Tuesday after Houthi attacks on Saudi refineries.
The Bank of England's current forecasts see UK food inflation reaching about 3.5% by year-end.
Capital Economics projects UK food inflation could rise to about 5% next summer after falling to 1.3% in July.
Bailey said higher short-term bond yields suggest three interest rate hikes over the next 12 months are "consistent" with a pessimistic risk view.

Inflation Risks

Bailey told the Treasury Select Committee that the war in Iran and extreme weather could create new upward pressure on inflation. He said the near-halt of transit through the Strait of Hormuz and pressures on refinery capacity could push energy prices even higher. Bailey added that these developments could also increase volatility in global markets. He said the conflict is causing a high level of energy prices and quite a bit of volatility, which is feeding through into financial markets.

Energy and Food Prices

Bailey said if crude oil shipment disruptions continue and refined product prices rise, inflation could accelerate again. He noted energy prices are already high and could rise further, keeping inflation risks to the upside. The Bank of England's current forecasts see UK food inflation reaching about 3.5% by year-end, but Bailey said that estimate needs reassessment given recent developments. Capital Economics projects UK food inflation could rise to about 5% next summer after falling to 1.3% in July.

Interest Rate Outlook

Bailey said higher short-term bond yields suggest three interest rate hikes over the next 12 months are "consistent" with a pessimistic view on risks facing the UK economy. He insisted there was "no secret plan" to hike rates in the coming months and the Monetary Policy Committee would be led by data. The rate-setters will decide whether to hike interest rates next week.