Energy Price Pressure Spurs Rate Hike Warning from Bank Deputy
The Bank of England's deputy governor, Clare Lombardelli, has warned that a rise in interest rates is 'increasingly likely' if energy prices continue to remain high. Speaking at a speech in Warsaw, Ms Lombardelli said that the longer higher energy prices persist, the greater the risk that indirect effects build and inflation expectations adjust.
The Bank of England kept interest rates steady at 3.75% earlier this month, but with inflation reaching a five-month high of 3.1%, there is pressure on rate-setters to tighten fiscal policy. Ms Lombardelli said that the key issue is not the spot price of energy itself, but rather the interaction between the underlying economy, higher energy prices, and their transmission.
The Bank has predicted 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 towards 4% in the first quarter of next year, households are set to witness a roughly 4% rise in the energy price cap from next week.