22nd August 2026
UK inflation is rising again, and the danger is that the Bank of England will respond in exactly the wrong way.
Inflation is now 2.9%, household energy prices are expected to rise sharply this autumn, and disruption to energy supplies through the Strait of Hormuz threatens further increases. At the same time, drought is putting pressure on food supplies and prices.
None of this is being caused by excessive household spending or workers demanding too much money. These are supply-side problems. Yet the Bank of England could respond by raising interest rates.
Higher interest rates cannot produce food after a drought. They cannot create oil or gas. What they can do is increase mortgage payments, rents, car finance, credit card costs and other borrowing costs. They can reduce household spending, increase unemployment and make recession more likely.
That means households could be punished twice: first by higher prices for essentials, and then by higher interest rates supposedly intended to tackle those prices.
There is an alternative. The government has powers under the Bank of England Act 1998 that it could use in an emergency. There is a cost-of-living crisis. They say so. The Bank of England could be told to hold or cut rates. Independence does not mean that ministers have no responsibility for what happens.
If rates rise again, the resulting economic pain will not be inevitable. It will be the consequence of political choices.