A Bank of England policymaker has suggested that an interest rate hike appears "increasingly likely" if energy prices remain high for an extended period. Deputy Governor Clare Lombardelli, speaking at an event in Warsaw, indicated that higher energy prices make it "increasingly likely" that monetary policy will need to be tightened.
The Bank's Monetary Policy Committee (MPC) recently voted 6-3 to maintain interest rates at 3.75 per cent. Lombardelli supported this consensus vote, although she is considered a hawkish member of the committee. She stated it was "too soon to tell" if the rise in energy costs, attributed to the Iran war, had become embedded in the UK economy and wage settlements.
However, Lombardelli noted a "greater" risk that elevated energy prices could push prices higher in the coming months. She added that the energy price trajectory is moving towards an "adverse scenario" previously outlined by the central bank's forecasters.
Separately, rate-setter Swati Dhingra suggested that the Bank would need to await further evidence on inflation, particularly from upcoming winter energy prices and pay settlements, before considering an interest rate hike.