Energy shock threatens higher inflation, interest rates and weaker UK growth

The Bank of England has left its base rate at 3.75%, but warned that soaring energy prices could push inflation above 4% and weaken economic growth. The Ofgem price cap is expected to rise by 4% this quarter and a further 24% next year, squeezing household incomes and potentially creating another cost-of-living headache. Higher energy costs may also force the Bank to raise interest rates to control inflation, despite the risk of slowing demand. Meanwhile, the Bank plans to reshape quantitative tightening (QT), after gilt sales have contributed to higher yields and losses for the public finances.

Bank of England issues stark warning on energy price hike ahead after interest rate decision | Money News | Sky News

1. Explain why the Bank may increase base rates before the end of the year.

2. Examine two factors, mentioned in the article, that are likely to cause inflation to rise further above target.

3. Discuss the benefits and costs of the Bank's quantitative tightening.