Rate Rise Looms if Energy Prices Persist: Bank of England Deputy Governor

A deputy governor at the Bank of England has warned that a rate rise is increasingly likely if energy prices stay high. Clare Lombardelli made the statement during a speech in Warsaw, where she highlighted the impact of rising energy costs on inflation expectations and economic activity.

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

The Bank of England 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. Lombardelli also pointed towards a predicted rise in food price inflation, as manufacturers pass higher energy costs on to consumers.