Energy Price Pressure May Spark Interest Rate Hike

A deputy governor at the Bank of England has warned that interest rates may rise if energy prices remain high.

Clare Lombardelli said during a speech in Warsaw that energy price pressure could drive rate-setters to tighten fiscal policy unless there is particular weakness in the economy.

Lombardelli, who was one of the six-to-three majority who voted to maintain UK interest rates at 3.75% earlier this month, stated that 'the longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining and price-setting behaviour begin to adjust in response.'

She added that policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity.