Energy Price Pressure Could Trigger Interest Rate Hike

A top official at the Bank of England has warned that interest rates could rise if energy prices remain high. Deputy Governor Clare Lombardelli stated that energy price pressure could drive rate-setters to tighten fiscal policy unless there is weakness in the economy.

The Bank's inflation target is 2%, but current inflation stands at a five-month high of 3.1%. The Bank predicts that inflation will increase further, reaching around 3.7% by the end of this year and 4.2% in the first quarter of next year.

Lombardelli emphasized that it's not just the energy price itself but how it interacts with the economy that determines whether interest rates need to rise. She noted that if elevated energy prices persist, policy is increasingly likely to need to tighten, absent clear evidence of disinflation or weaker activity.