Bank Deputy Warns Interest Rates May Rise if Energy Prices Persist

A senior official at the Bank of England has warned that interest rates may need to rise if energy prices remain high, causing inflation to persist.

Clare Lombardelli, a deputy governor at the central bank, made the comments during a speech in Warsaw, where she noted that prolonged high energy prices could lead to indirect effects on the economy and drive rate-setters to tighten fiscal policy.

The key issue is not the current price of energy itself but how it interacts with the underlying economy and wage-setting behavior, Lombardelli said. She emphasized that this interaction will determine whether interest rates need to rise.

Her comments come after inflation reached a five-month high of 3.1% last month, moving further away from the Bank's 2% target rate. Inflation is predicted to keep rising over the coming months as higher energy costs continue to filter through, with households set to witness a roughly 4% rise in the energy price cap from next week.

Lombardelli also pointed towards a predicted rise in food price inflation, which recently hit a two-year-low of 1.3% but is expected to move towards 4% in the first quarter of next year according to the Bank's predictions.