The Bank of England has kept borrowing costs unchanged at 3.75% for a fifth consecutive meeting, while signalling that inflation is likely to rise again because of volatile energy markets linked to conflict in the Middle East. For airlines and the wider aviation sector, the outlook adds another layer of uncertainty to fuel costs, which have been swinging sharply in response to developments around the Iran war.
The central bank said the UK economy is now expected to grow a little faster than it had previously predicted this year, even as it warned that the path ahead remains highly uncertain. It said the scale and duration of any energy shock will be key to future decisions on interest rates. Oil prices have moved sharply in recent days as markets reacted to changing headlines from the US-Iran conflict, with crude falling on one day and then jumping above $91 a barrel on another.
Recent UK inflation data showed price growth easing to 2.6% in the year to June, helped by lower diesel and petrol prices during a brief pause in hostilities. But Bank governor Andrew Bailey said inflation had fallen faster than expected only to face renewed pressure from high and volatile energy costs. He said any rise should be temporary and that inflation must return to the Bank’s 2% target.
Energy shock raises questions for carriers
The Bank set out several possible inflation paths depending on how the Middle East conflict develops. It had previously expected inflation to peak at 3.5% this year, but now sees a lower peak. In one worst-case scenario, with oil at $100 a barrel, inflation could reach 3.2% in 2026. In another scenario, with oil around $76 before easing to $71, inflation could still reach 3% — above the Bank’s target. The UK economy is now forecast to grow by 1.1% this year, ahead of the Bank’s April outlook. Although the rate-setting committee voted to hold, three of its nine members backed an increase to 4%, including Megan Greene, who said other risks to inflation remain, including possible disruption in the Red Sea, where Houthi rebels in Yemen have recently attacked oil tankers.
Source: bbc.co.uk
