Prices in British shops will soar next year unless the war in Iran ends, the head of the Bank of England has warned.
Andrew Bailey said the rate of inflation will rise to nearly 5% – more than double the 2% target – unless a peace deal is agreed soon.
He was speaking as the Bank put up interest rates for the first time in more than three years in an attempt to slow down the rate of inflation, which is currently 3.5%.
The decision is a major blow to Andy Burnham’s hopes of tackling the cost of living crisis.
At its latest meeting, the Monetary Policy Committee (MPC) of the Bank of England decided to increase interest rates to 4% from 3.75%.
But Bailey said that could go even higher if the the war – which began in February when Trump gave the go-ahead for the US military to attack Iranian targets – continues.
He said: “Today’s increase shouldn’t be seen as the first in an inevitable long sequence of hikes.
“But, unless the conflict in the Middle East is resolved, neither does it seem likely to be the last increase.”
Oil prices have soared since the war began, pushing up prices in the shops as well as energy bills.
Bailey said inflation is on track to hit nearly 5% next year, but could go as high as 6.2% in the second half of next year if the war in Iran escalates.
The Bank’s decision came a day after Trump’s Republican Party suffered humiliation in the US midterm elections, with vice-president JD Vance saying the war was to blame.
Chancellor John Healey said: “The Iran conflict is reaching deep into the pockets of families and businesses here at home.”
Liberal Democrat Treasury spokesperson Daisy Cooper said the interest rate hike was “another hammer blow to families already squeezed by the cost of living”.
“The unfair mortgage hit awaiting millions has Donald Trump’s name written all over it,” she said. “His reckless Iran war – backed by the Conservatives and Reform UK – sent energy and fuel prices soaring, and now it’s pushing up people’s mortgage bills through higher inflation and interest rates.”
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