Energy Price Pressure Puts Interest Rate Hikes on Table

A senior Bank of England official has warned that interest rate hikes are increasingly likely if energy prices persist at current levels.

Clare Lombardelli, a deputy governor at the central bank, made the comments in Warsaw, stating that 'the longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining and price-setting behavior begin to adjust in response.'

The Bank of England has already voted to maintain interest rates at 3.75%, but Lombardelli's comments suggest that a rate rise could be on the horizon if energy prices continue to drive up inflation.

Inflation recently reached a five-month high of 3.1%, and is predicted to keep rising over the coming months as higher energy costs filter through to households.

The Bank has forecasted that inflation will increase to around 3.7% in the fourth quarter of this year and 4.2% in the first quarter of 2027, with food price inflation predicted to rise from 1.3% to 4% over the same period.