London Daily

Focus on the big picture.
Wednesday, Jan 07, 2026

Bank of England doubles down on inflation gamble to prevent greater damage ahead

Bank of England doubles down on inflation gamble to prevent greater damage ahead

Sky's Paul Kelso speaks to a business owner facing a massive, damaging increase to their gas bills as the governor of the Bank of England explains why it is inflicting more pain on millions of borrowers to help control a price problem mostly outside its control.

How does it feel running an energy intensive business in the age of soaring prices?

"It's like a train coming down the tracks and you know you can't avoid it," says Matthew Greene.

He's the managing director of Ercon Powder Coating, a second-generation family firm in Bilston in the West Midlands, one of hundreds of manufacturers that form the backbone of British industry.

Matthew took over the business from his father in 2016, since when he has had to steer it through Brexit, the pandemic and now an energy crisis that may be the hardest of all. His two sons work with him.

Matthew Greene, the boss of Ercon Powder Coating, fears its gas bills will rise six-fold


Powder-coating is the process of applying a smooth, dry finish to metal surfaces, used for everything from park railings and shelving units to hi-fi appliances and designer chair legs.

It's cleaner, quicker and smoother than paint but it is an energy intensive business, requiring large gas-fired convection ovens to bake on the powder at temperatures north of 200C, and the locomotive Matthew can see in the distance is his gas bill.

"You're talking about going from £50,000 or £60,000 to up to £300,000, so where does that come from? We can make small improvements here and there, save a thousand pounds a month here and there, but such a huge rise does threaten the viability of the business.

"We have 25 people employed in the powder coating division, we have been doing this since 1983 and we have had highs and lows with various recessions, but this is something different, we've never experienced anything like this when such a catastrophic cost is going to hit the company.

"The gas is going to cost more than employing people, more than renting the building, more than employing, it's going to have a huge impact."

The wholesale gas price increase Matthew faces isn't just fuelling his ovens.

The Bank of England says it's driving inflation to a peak of 13.3% in October, a date linked to the increase in the domestic price cap to an estimated £3,500, and will keep inflation above 10% until this time next year, prompting the largest fall in living standards since the 1960s.


Given a 15-month recession looms and this is largely imported inflation, driven by global demand and the war in Ukraine and beyond the control of the Bank, why has it decided to increase interest rates by the largest amount since 1995, a move that could add £650 to average tracker mortgage repayments?

Governor Andrew Bailey told me they're acting now to prevent the impact of energy inflation being baked into domestic prices when prices fall.

"The reason we're doing it is because if we don't get inflation under control, if we don't bring it down from where I'm afraid it's got to go because of this huge energy shock that we're having, then the damage and the distress will be even greater," he said.

"I recognise how difficult this will be and how significant this will be for the cost of living, but if we don't address this now the consequences will be worse and the result will be even higher interest rates in future."

Mr Bailey says there is already evidence of domestic inflation taking root in Britain's tight labour market, where there are more vacancies than job-seekers, forcing wages up by a predicted 6% this year.

He repeated his warning that inflation-chasing pay settlements risks embedding inflation, a message unlikely to find supporters among public and private sector workers facing below-inflation settlements.

Speaking in the midst of the Conservative leadership race, he resisted all invitations to comment on the candidates' extravagant tax-cutting promises, or suggestions from Liz Truss that the Bank's mandate should be changed.

He did however defend its judgement today, and its role in future.

"We think this is undoubtedly the right thing to do, but we will be back in six weeks' time, for the next monetary policy meeting, and we'll go through all the evidence again.

"What I would emphasise is that independence is an absolutely key part of the economic system of this country, and in other countries. It's an important part and never more than now, this is the biggest test of our system in the quarter of a century this has existed for."

The next few months will test that faith. Matthew Green, thousands of business owners like him, and the rest of us, will hope Mr Bailey and his colleagues have got it right.

Newsletter

Related Articles

0:00
0:00
Close
UK Data Watchdog Probes Elon Musk’s X Over AI-Generated Grok Images Amid Surge in Non-Consensual Outputs
Prince Harry to Return to UK for Court Hearing Without Plans to Meet King Charles III
UK Confirms Support for US Seizure of Russian-Flagged Oil Tanker in North Atlantic
Béla Tarr, Visionary Hungarian Filmmaker, Dies at Seventy After Long Illness
UK and France Pledge Military Hubs Across Ukraine in Post-Ceasefire Security Plan
Prince Harry Poised to Regain UK Security Cover, Clearing Way for Family Visits
UK Junk Food Advertising Ban Faces Major Loophole Allowing Brand-Only Promotions
Maduro’s Arrest Without The Hague Tests International Law—and Trump’s Willingness to Break It
German Intelligence Secretly Intercepted Obama’s Air Force One Communications
The U.S. State Department’s account in Persian: “President Trump is a man of action. If you didn’t know it until now, now you do—do not play games with President Trump.”
Fake Mainstream Media Double Standard: Elon Musk Versus Mamdani
HSBC Leads 2026 Mortgage Rate Cuts as UK Lending Costs Ease
US Joint Chiefs Chairman Outlines How Operation Absolute Resolve Was Carried Out in Venezuela
Starmer Welcomes End of Maduro Era While Stressing International Law and UK Non-Involvement
Korean Beauty Turns Viral Skincare Into a Global Export Engine
UK Confirms Non-Involvement in U.S. Military Action Against Venezuela
UK Terror Watchdog Calls for Australian-Style Social Media Ban to Protect Teenagers
Iranian Protests Intensify as Another Revolutionary Guard Member Is Killed and Khamenei Blames the West
Delta Force Identified as Unit Behind U.S. Operation That Captured Venezuela’s President
Europe’s Luxury Sanctions Punish Russian Consumers While a Sanctions-Circumvention Industry Thrives
Berkshire’s Buffett-to-Abel Transition Tests Whether a One-Man Trust Model Can Survive as a System
Fraud in European Central Bank: Lagarde’s Hidden Pay Premium Exposes a Transparency Crisis at the European Central Bank
Trump Announces U.S. Large-Scale Strike on Venezuela, Declares President Maduro and Wife Captured
Tesla Loses EV Crown to China’s BYD After Annual Deliveries Decline in 2025
UK Manufacturing Growth Reaches 15-Month Peak as Output and Orders Improve in December
Beijing Threatened to Scrap UK–China Trade Talks After British Minister’s Taiwan Visit
Newly Released Files Reveal Tony Blair Pressured Officials Over Iraq Death Case Involving UK Soldiers
Top Stocks and Themes to Watch in 2026 as Markets Enter New Year with Fresh Momentum
No UK Curfew Ordered as Deepfake TikTok Falsely Attributes Decree to Prime Minister Starmer
Europe’s Largest Defence Groups Set to Return Nearly Five Billion Dollars to Shareholders in Twenty Twenty-Five
Abu Dhabi ‘Capital of Capital’: How Abu Dhabi Rose as a Sovereign Wealth Power
Diamonds Are Powering a New Quantum Revolution
Trump Threatens Strikes Against Iran if Nuclear Programme Is Restarted
Apple Escalates Legal Fight by Appealing £1.5 Billion UK Ruling Over App Store Fees
UK Debt Levels Sit Mid-Range Among Advanced Economies Despite Rising Pressures
UK Plans Royal Diplomacy with King Charles and Prince William to Reinvigorate Trade Talks with US
King Charles and Prince William Poised for Separate 2026 US Visits to Reinforce UK-US Trade and Diplomatic Ties
Apple Moves to Appeal UK Ruling Ordering £1.5 Billion in Customer Overcharge Damages
King Charles’s 2025 Christmas Message Tops UK Television Ratings on Christmas Day
The Battle Over the Internet Explodes: The United States Bars European Officials and Ignites a Diplomatic Crisis
Princesses Beatrice and Eugenie Join Royal Family at Sandringham Christmas Service
Fine Wine Investors Find Little Cheer in Third Year of Falls
UK Mortgage Rates Edge Lower as Bank of England Base Rate Cut Filters Through Lending Market
U.S. Supermarket Gives Customers Free Groceries for Christmas After Computer Glitch
Air India ‘Finds’ a Plane That Vanished 13 Years Ago
Caviar and Foie Gras? China Is Becoming a Luxury Food Powerhouse
Hong Kong Climbs to Second Globally in 2025 Tourism Rankings Behind Bangkok
From Sunniest Year on Record to Terror Plots and Sports Triumphs: The UK’s Defining Stories of 2025
Greta Thunberg Released on Bail After Arrest at London Pro-Palestinian Demonstration
Banksy Unveils New Winter Mural in London Amid Festive Season Excitement
×