Bank of England chief warns energy bills will start hitting shop prices if the Iran war drags on

Andrew Bailey told an IMF gathering in Bangkok that British firms are slashing headcount and squeezing profit margins to shield customers from soaring energy costs driven by the US-Iran conflict — but warned the strategy has limits. The Bank of England governor said the longer the energy crisis persists, the harder it will become for businesses to absorb costs without raising prices. Inflation already stands at 3.1 per cent, well above the Bank's 2 per cent target, with September's figures due next week expected to push it to 3.4 per cent. The Bank's own forecast warns inflation could surge above 4 per cent in early 2027.

The Bank's nine-member rate-setting committee meets on 5 November, with three members already pushing to raise rates from 3.75 per cent to 4 per cent.

Household energy bills are expected to jump at least 16 per cent in January, pushing Ofgem's annual price cap to nearly £2,000.

Bailey said evidence of inflation spreading more broadly into wages and prices remains 'subdued' — for now.