People look through the window an estate agents window in Uckfield, south of London, on September 16, 2026. (AFP Photo)
Higher energy costs are prompting central banks in major economies to raise interest rates or warn of further increases, adding to borrowing pressures for households and businesses.
The U.S. Federal Reserve raised rates for the first time in more than three years, Japan approved an increase to its highest level since 1995, and the Bank of England warned that persistent energy price pressures could require it to follow.
The decisions reflect concern that the disruption caused by the Iran war will spread beyond fuel prices into wages, business costs and inflation expectations.
The Fed raised its target range by a quarter percentage point to 3.75–4 percent on Sept. 16, with all 12 voting members backing the move.
“The plain fact is that inflation is too high and has been for too long,” Fed Chairman Kevin Warsh said.
Warsh said the central bank could not control individual oil or food prices, but could act to prevent those increases from generating broader inflation.
He cited stronger hiring and business investment, while saying underlying inflation had shown no meaningful improvement over the summer.
Officials’ median projections pointed to another quarter-point increase by year-end and rates at the same level at the end of 2027.
The Bank of Japan voted 7–2 on Sept. 18 to raise its policy rate from 1 percent to 1.25 percent.
It said high oil prices and a weaker yen were increasing business costs, with companies passing more of those increases on to consumers. The bank signaled further rate rises, while saying financial conditions would remain supportive of economic activity after the increase.
Britain held its benchmark at 3.75 percent on Sept. 17, although three of the Bank of England’s nine policymakers favored a quarter-point rise.
Annual consumer inflation reached 3.1 percent in August. Based on energy prices earlier in the week, the bank expected it to rise to around 3.75 percent in the final quarter of 2026 and slightly above 4 percent in early 2027.
The bank said there was little evidence so far that higher energy costs were significantly changing wage and price-setting, but warned that the risk would increase the longer those costs stayed high.
The European Central Bank had already raised its deposit rate by a quarter point to 2.5 percent on Sept. 10, citing inflation pressures from the Middle East conflict.
Its latest forecasts put eurozone inflation at 3 percent this year and 2.5 percent in 2027, above its 2 percent target. The bank raised its growth forecast for 2026 to 0.9 percent, citing greater resilience than expected.
Separate Eurostat figures showed industrial production in the eurozone fell 0.1 percent in July from June and was unchanged from a year earlier.
For households, the pressure is already visible in housing finance.
The average U.S. 30-year fixed mortgage rate rose to 6.95 percent in the week to Sept. 17 from 6.76 percent a week earlier, according to Freddie Mac.
Mortgage rates are influenced by inflation expectations and longer-term bond yields. They had been climbing before the Fed’s latest decision.
For a borrower taking out a $400,000, 30-year loan, a 6.95 percent rate means roughly $255 more in monthly principal and interest payments than at the 5.98 percent average recorded in late February.
In Britain, quoted rates on two-year fixed mortgages were about 0.95 percentage points above their pre-conflict level, the Bank of England said.
Financial markets offered some relief on Sept. 17. Brent crude settled at $104.82 a barrel, down from nearly $110 earlier in the week, while the 10-year U.S. Treasury yield fell to 4.93 percent from 5.01 percent the previous day.
The Bank of England cautioned that even a resolution to the conflict would likely bring only a slow, gradual recovery in energy supplies.
