High Energy Prices Spark Interest Rate Hike Fears as Inflation Hits Five-Month High
A deputy governor at the Bank of England has said that a rise in interest rates is becoming increasingly likely due to high energy prices.
Clare Lombardelli, who voted for maintaining UK interest rates at 3.75% earlier this month, stated during a speech in Warsaw that prolonged high energy costs could drive rate-setters to tighten fiscal policy unless there's a significant weakness in the economy.
The key issue is not the current price of energy itself but how it interacts with the underlying economy and its transmission, according to Lombardelli. She emphasized that this interaction will determine whether the Bank Rate needs to rise.
Inflation has risen to 3.1%, a five-month high, and is expected to continue rising due to higher energy costs, which are predicted to increase by roughly 4% from next week. The Bank of England forecasts inflation to reach around 3.7% in the fourth quarter of this year and 4.2% in the first quarter of 2027.