BoE's Lombardelli Flags Higher Interest Rates if Energy Prices Persist

Bank of England Deputy Governor Clare Lombardelli stated that interest rates may increase if energy prices remain high. In a speech given at the Sixth Biennial Conference on Macroeconomic Policy in Warsaw, she emphasized that elevated energy costs can lead to inflation expectations and wage bargaining.

Lombardelli highlighted the importance of considering not just the spot price of energy but also its interaction with the underlying economy. She said that monetary policy would need to tighten if energy prices persist, unless there is clear evidence of a weaker economy or disinflation.

The Deputy Governor pointed out that wage growth of around 3.25% could be consistent with the 2% inflation target in the long run, assuming 1% productivity growth and normal import price inflation. However, if energy prices keep pushing up import costs, this might not be the case.