BoE's Lombardelli Warns of Rate Hike Risk Amid Persistent Energy Price Pressures

Bank of England Deputy Governor Clare Lombardelli has warned that UK interest rates may need to rise if energy prices persist at high levels. She made this statement during a speech at the Sixth Biennial Conference on Macroeconomic Policy in Warsaw, where she emphasized that monetary policy should not respond mechanically to changes in energy prices.

Lombardelli stressed that policymakers need to assess whether higher energy costs are beginning to feed into inflation expectations, wage bargaining, and corporate pricing behavior. She pointed out that prolonged increases in energy costs could create broader inflationary pressures by influencing these factors.

The BoE official warned that the longer energy prices remain high, the greater the risk that indirect effects become embedded in the economy, making it harder for inflation to return to target. 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.