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BoE deputy warns rates may need to rise as energy inflation persists

BoE deputy governor Clare Lombardelli said the longer high, volatile energy prices last, the greater the risk of inflation pass through into wages and prices.

Reported · Written up by our desk · Central Banks

Bank of England deputy governor Clare Lombardelli warned that UK interest rates may need to rise if necessary, to counter the risk that higher oil prices keep inflationary pressure persistent. Lombardelli said the energy shock linked to the conflict in the Middle East is likely to push UK inflation higher in the coming months, according to the Guardian.

In remarks at the Sixth Biennial Conference on Macroeconomic Policy in Warsaw, Lombardelli noted that businesses have shown more resilience to higher energy costs than the BoE expected. However, she said the longer energy prices remain high and volatile, the greater the risk that cost pressures pass through more widely into domestic wages and prices.

Lombardelli also flagged “material uncertainty” about the size of second-round effects, where high inflation lifts wages and fuels further inflation. She is one of six BoE policymakers who voted to leave rates on hold last week, after outvoting three colleagues who supported a rise.

Separately, the market backdrop in the same coverage showed US 30-year bond yields hitting the highest level since 2004, with Brent crude trading over $103 a barrel. Other items cited included Norway raising its interest rate to 4.5% and discussion that more US rate hikes are being priced in.

Latest closeWTI crude $95.27 ▲3.4%|Brent $100.98 ▼2.0%

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