London Daily

Focus on the big picture.
Sunday, Aug 16, 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
Reform UK Unveils Plan to Cut Welfare Spending by More Than £50 Billion a Year
Prime Minister Andy Burnham Praised Extinction Rebellion for Doing a 'Great Service'
UK Wildfire Phone Alert Triggers Backlash as Users Switch Off Emergency Warnings
Heathrow Roads Reopen After Burst Water Main Floods Access to Terminals 2 and 3
Former NBA Players Enes Kanter Freedom and Royce White Say They Will Enter 2027 WNBA Draft
Italian Speed Camera Issues Nearly 32,000 Fines in 10 Weeks, Worth More Than €3 Million
Former Cambridge Professor Jason Arday Found Dead Days After Resigning Amid Plagiarism Row
US Appeals Court Rules AI Agent's Website Actions Are Legally Attributed to the User
France's Constitutional Council Blocks Social Media Ban for Children Under 15
Liechtenstein Changes Royal Succession Rules to Allow Women to Inherit the Throne
Women Allege Rape and Sexual Abuse at British Army College for Teenage Recruits
Minnesota: Two independent investigators posed as Muslims (one wearing a burqa) and showed how they could vote in elections without identification.
UK Prime Minister Andy Burnham Takes Regional Tour to Highlight Local Infrastructure and Environmental Problems
Nigel Farage Wins Clacton By-Election to Return to the House of Commons
Bank of England Warns Rising Inflation Could Squeeze UK Household Incomes
UK Government Announces £65 Million Aid Package for Farmers Hit by Severe Drought
UK Economy Grows 0.4% in Second Quarter Despite Energy Market Pressures
UK Issues Emergency Alert as Severe Wildfires Spread Across England and Wales
UK and Finland Discuss European Defence and Continued Support for Ukraine
Nigel Farage Wins Clacton By-Election to Return to the House of Commons
UK Government Deploys Military to Help Fight Wildfires and Bans Disposable Barbecues
UK Records Hottest Day of the Year as Fifth Summer Heatwave Peaks in Southern England
UK Condemns Houthi Actions and Warns of Red Sea Threat to Global Trade
UK and Solomon Islands Open Wildlife Photography Exhibition in Honiara
UK Small Businesses Face Continued Cash Flow and Tax Pressures
Greatham Marsh Restoration Restores Tidal Wetland in Hartlepool After More Than 200 Years
UK Health Regulator Urges University Students to Check Meningitis and Measles Vaccination Status
Mining Remediation Authority Completes Major Ground Stabilization Works in Scottish Community
UK Food Crime Investigators Seize 33 Tonnes of Illegal Food in Multi-Agency Operation
Technical Qualification Uptake Hits Record High as Advanced Mathematics Results Improve
UK Summer Temperatures on Course to Challenge Long-Standing Records, Met Office Says
UK Farmers Bring Forward Cereal Harvests as Drought Threatens Yields
Wildfires Surge Across England and Wales as Fire Chiefs Report Record July
UK Nurses Warn of Heat Risks as Hospital Staff Struggle With Extreme Temperatures
Southern Water Seeks Drought Order for Hampshire and Isle of Wight Amid Water Shortages
UK Heatwave Pushes West London Temperature to 38.1 Degrees as Health Alerts Continue
UK Economy Grows 0.4% in Second Quarter Despite Global Uncertainty
China’s Kimi Launches AI-Focused Credit Card With Agricultural Bank of China and American Express
UK Residents Gather to Watch Rare Partial Solar Eclipse
Reform UK Deputy Leader Richard Tice Faces Criticism Over Legal Threat Against Guardian Journalist
Michael Forsyth Elected Speaker of the House of Lords
Cambridge Researchers Launch £20 Million Human Organoid Drug Testing Programme
Heathrow Loses European Passenger Traffic Lead to Istanbul Airport
Households Near New UK Electricity Pylons to Receive £250 Annual Energy Bill Discount
UK Government Estimates Zero-Hours Contract Ban Could Cost Employers Up to £3 Billion a Year
Robert Jenrick Leaves Conservatives for Reform UK in Major Parliamentary Defection
UK Police Chiefs Urge Government to Block Early Release of Andrew Harper Killers
UK Government Holds Emergency Cobra Meeting as Drought and Heatwave Raise Wildfire Risks
Former Labour Adviser Arrested on Suspicion of Spying for China Held Privileged Access as Top Party Donor
Turkish Parliament Passes Landmark Bill Granting Conditional Amnesty to Disarmed PKK Members
×