Bank of England Policymakers Warn of Inflation Risks from Prolonged Energy Costs

Two senior Bank of England policymakers have warned that high energy prices could lead to increased inflation and force the central bank to raise interest rates. Deputy Governors Clare Lombardelli and Sarah Breeden expressed concerns about the prolonged effect of elevated energy costs on inflation expectations, wage negotiations, and business pricing.

Lombardelli stated that the longer high energy prices persist, the greater the risk of indirect effects building up and affecting inflation expectations, wage bargaining, and price-setting behavior. Breeden warned that policymakers would need to monitor how the energy shock spreads through the wider economy and assess its potential impact on consumers and businesses.

The Bank of England has kept its benchmark interest rate at 3.75%, despite renewed inflationary pressure from the ongoing conflict in Iran and disruptions to global energy supplies. Financial markets have responded with a 75% probability assigned to a 0.25 percentage-point rate increase at the Bank's November meeting, with another increase fully priced in by February.