Rate Hike Looms as Energy Prices Push Inflation Risk

A Bank of England policymaker has suggested that an interest rate hike is 'increasingly likely' if energy prices remain higher for longer. Clare Lombardelli, deputy governor, made this statement while speaking at an event in Warsaw.

The Bank of England voted 6-3 to keep interest rates on hold at 3.75 per cent, with Lombardelli backing the consensus vote. However, she acknowledged that there was a 'greater' risk that elevated energy prices could push inflation higher in the coming months.

Lombardelli said that policy is 'increasingly likely to need to tighten' if energy prices persist, but added that this would be 'absent clear evidence of disinflation or weaker activity'. She also stated that the rise in energy prices was 'positively related' to second-round effects, which could lead to wages and prices spiralling.

Sarah Breeden, another Bank official, said it is 'increasingly appropriate' to respond to inflation risks in the UK economy. However, Swati Dhingra suggested that the Bank would still need to wait for further evidence on whether inflation could jump higher than expected.