The Bank of England has held interest rates for the sixth time in a row but said they are likely to rise if high energy prices caused by the conflict in the Middle East continue.
The main Bank rate has been kept at 3.75% despite an increase in the pace of inflation.
The US-Israel war with Iran has disrupted global energy supplies which has led to a sharp increase in petrol and diesel prices.
The Bank now forecasts that inflation will rise more than it previously thought and warned that the price cap on household gas and electricity bills for January is “now expected to rise substantially further”.
Bank of England governor Andrew Bailey said the longer the volatility in energy prices persists, “the bigger the impact it will have on inflation and the more likely it is we will need to raise [the] Bank rate to ensure that inflation falls back to our 2% target”.
The Bank rate is crucial in setting the benchmark for banks and other lenders in setting interest for individuals and businesses borrowing and saving money.
Interest rates are used by the Bank to control inflation, which measures the rate at which prices are rising.
The Bank aims to keep inflation at a target rate of 2%, but it has been above that rate for nearly two years.
On Wednesday, official figures showed inflation had risen to 3.1% in August from 2.9% in July.
