Britain's Inflation Problem Is Now an Energy Problem

The Bank of England held Bank Rate at 3.75 per cent this week, but the vote was hardly soothing. Six members backed a hold and three wanted a quarter point increase. The Bank said UK CPI inflation had reached 3.1 per cent in August and was likely to rise further over coming quarters.

The source of the pressure is increasingly clear. In its September minutes, the Monetary Policy Committee said Brent crude had risen 36 per cent and UK wholesale gas 78 per cent since the period before its July report. It judged the risks to inflation were tilted further upwards, while warning that a long energy shock could feed into wages and the prices of other goods.

Reuters reported the same shift in the Bank's tone and the market reaction. The central bank is holding today while keeping the option of a hike open, a difficult position for households already facing higher fuel and utility bills. Monetary policy can restrain demand. It cannot produce gas, refine fuel or make a weak supply chain resilient.

The Bank also voted unanimously to unwind its remaining stock of government bonds through a multi-year plan that runs to 2034. Annual sales will average 20 billion pounds alongside maturing gilts, with the total stock falling at an average pace of 46 billion pounds a year. That is a long financial operation, not a substitute for a cheaper and more reliable energy system.

Britain's constructive choice is supply. Approve energy infrastructure faster, keep reliable generation online, and stop treating domestic production as a nuisance to be managed away. If the country wants lower inflation and higher wages, it needs more energy and more productive capacity. A central bank can defend the value of money. It cannot build the power station that makes the defence easier.