BoE's Lombardelli Signals Rate Hikes May Be Needed Amid High Energy Costs

Bank of England Deputy Governor Clare Lombardelli warned on Thursday that UK interest rates may need to rise if energy prices persist at elevated levels. In a speech at the Sixth Biennial Conference on Macroeconomic Policy in Warsaw, Lombardelli stated that prolonged increases in energy costs could create broader inflationary pressures.

Lombardelli emphasized that monetary policy should not respond mechanically to changes in energy prices, but rather assess whether higher energy costs are beginning to feed into inflation expectations, wage bargaining, and corporate pricing behavior. If those second-round effects become more pronounced while there is no clear evidence of weaker economic activity or disinflation, monetary policy may increasingly need to become tighter.

The BoE official stressed that the central bank needs to carefully balance persistent inflation risks against the possibility that higher borrowing costs could further weaken economic growth.