BoE Governors Hint at Rate Hike as Energy Costs Rise

Two senior members of the Bank of England's interest rate-setting committee have hinted that they might vote for an increase in borrowing costs. Deputy Governors Clare Lombardelli and Sarah Breeden, who both voted to hold the BoE's benchmark rate at 3.75% last week, said they were considering shifting their position.

The risk of inflation getting stuck at high levels is rising due to unrelentingly high energy costs, according to Lombardelli. She warned that 'the longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining, and price-setting behaviour begin to adjust in response.'

Breeden sounded a similar warning, saying 'the more sparks we're throwing in the tinderbox, the more likely we might have to turn the hose on it.' The BoE will watch carefully for signs of how big the energy price shock is proving and how much the rise is filtering through into the broader economy.

Despite this, a third member of the Monetary Policy Committee, Swati Dhingra, sounded a less urgent note about the prospect of an increase in borrowing costs. She said that Britain was not experiencing the kind of broad-based price rises that occurred in 2022, when energy prices jumped in response to Russia's invasion of Ukraine.

Investors are assigning a 75% chance of the BoE raising its Bank Rate by a quarter of a percentage point at its next meeting in November. The governor, Andrew Bailey, is due to speak publicly on Friday and has said that 'the longer this goes on, the more difficult this becomes'.