Bank of England’s Bailey says energy shock’s impact on inflation remains subdued

Bank of England Governor Andrew Bailey offered a surprisingly calm assessment of the UK’s inflation picture on August 28, delivering a message that energy price shocks, while painful at the pump, haven’t yet burrowed deep into the broader economy. The second-round effects of higher energy costs on wages and prices have been “quite subdued,” Bailey said, a reading that could keep the central bank on hold for longer than some hawks might prefer. The comments come as UK CPI inflation hit 3.1% in the year to August 2026, up from 2.9% in July and 2.6% in June. Most of that climb traces back to a familiar culprit: motor fuel prices, which surged to their highest levels since November 2022 amid ongoing Middle East tensions and the resulting disruption to global energy markets. The 75% question Bailey pointed to a key metric in his assessment. Roughly 75% of the energy shock has already passed through to consumer prices. But the critical question for monetary policy isn’t the direct hit to household energy bills or petrol costs. It’s whether those higher input costs start showing up in everything else, from restaurant menus to rent negotiations to wage demands. The Bank of England’s Moneta...