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Bank of England warns UK rates may need to rise if energy stays high

Bank deputy governor Clare Lombardelli said policy is increasingly likely to tighten if high oil prices persist and risks of wider wage and price pass through grow.

Reported · Written up by our desk · Central Banks

The Bank of England’s deputy governor, Clare Lombardelli, warned that UK interest rates may need to rise if elevated energy prices persist, citing the risk of persistent inflationary pressures tied to higher oil costs, according to the Guardian Business.

Speaking at the Sixth Biennial Conference on Macroeconomic Policy in Warsaw, Lombardelli said the conflict in the Middle East and the resulting energy shock are likely to keep pushing UK inflation higher in the coming months, even as businesses have shown resilience to higher energy costs.

She noted that longer-lasting, high and volatile energy prices increase the risk of “pass-through” into domestic wages and prices, adding material uncertainty over the size and duration of the energy shock.

Lombardelli also raised the importance of whether so-called “second-round effects” are developing, where high inflation pushes up wages and fuels further inflation, and said policymakers are increasingly likely to need to tighten policy if elevated energy prices remain without clear evidence that the shock will fade.

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