BoE Deputy Warns of Possible Rate Hike Amid Persistent Energy Prices

Clare Lombardelli, deputy governor at the Bank of England, indicated on Thursday that borrowing costs might need to rise if energy prices persist.

Lombardelli oversees monetary policy and had previously stated that the argument for lifting rates was strengthening. She cast her vote in favor of keeping interest rates unchanged at 3.75%, which aligns with a 6-3 majority decision.

The deputy governor emphasized the need to guard against energy costs feeding into inflation expectations, wage negotiations, and pricing decisions. Lombardelli noted that monetary policy and financial conditions remain restrictive but cautioned that food inflation could accelerate if it surpasses forecasts.

Lombardelli stated that wage growth of approximately 3.25% could be compatible with the Bank of England's 2% inflation goal over the longer term, provided productivity rises by 1% and import price inflation remains normal. However, she warned that this scenario might not hold if energy costs continue driving up import expenses.

Financial markets indicate a roughly 75% likelihood of a quarter-point interest rate hike at the Bank of England's November meeting.