BoE Rate Setters Warn of Interest Rate Hike Due to High Energy Prices

Two senior Bank of England interest rate-setters, Clare Lombardelli and Sarah Breeden, suggested they may vote for an increase in borrowing costs due to persistently high energy prices. The rising energy costs pose a risk that inflation gets stuck at high levels.

Lombardelli warned that the longer higher energy prices persist, the greater the risk that indirect effects build and inflation expectations adjust in response. Breeden used a different analogy, saying 'the more sparks we're throwing in the tinderbox, the more likely we might have to turn the hose on it.'

Investors assign a 75% chance of the BoE raising its Bank Rate by a quarter of a percentage point at its next meeting in November. Analysts at Investec believe this is likely unless there is material progress in negotiations that see substantial energy flows resume through the Strait of Hormuz.