Rishi Sunak’s energy bill support may prompt the Bank of England to push up interest rates even further, City experts warned.
The Chancellor has vowed to give every household £400 to help with bills. The total cost of the support will be £21billion.
But some economists fear this could put more money in the hands of consumers who don’t need it. If they spend the money on other goods, prices will rise, adding to the cost of living crisis.
Consequences: The Bank pushes up rates – now at 1 per cent – to tame prices by encouraging people to save, not spend
Paul Dales, at Capital Economics, said: ‘It won’t relieve all the pain and may mean the Bank of England has to pull the interest rate lever harder to reduce inflation.’
The Bank pushes up rates – now at 1 per cent – to tame prices by encouraging people to save, not spend.
Simon French, an economist at Panmure Gordon, agreed the Bank could push up rates faster but noted that the big drivers of UK inflation were from supply chain hold-ups.
For this reason, Sunak’s package should cause ‘minimal additive inflation fears’.
