Interest rate reaction: Act sooner rather than later to buffer the energy crisis shock says IPPR

Responding to the latest MPC decision, Carsten Jung, associate director at IPPR, said:

“The unfolding energy crisis is terrible news for the UK’s inflation outlook. Before the war, inflation was expected to return to its 2 per cent target soon. But if increased fossil fuel costs persist, inflation could be about 1 percentage point higher than expected. This would lead to higher interest rates and lower growth.  

“As long as we are heavily dependent on fossil fuels for our energy, there are no good options in a crisis like this. But the government can learn the lessons from the last energy shock and prevent a negative spiral. It should intervene sooner rather than later to cap energy costs from peaking too high, whilst ensuring the cost of the intervention are fairly shared.”