Bank of England Deputy Governor Clare Lombardelli said rates are increasingly likely to need to rise if energy prices stay high, unless there is clear evidence of disinflation or weaker activity. She joined the 6-3 majority that kept Bank Rate at 3.75% last week.
Lombardelli said rates should not react mechanically to energy prices; the concern is that prolonged costs feed into inflation expectations, wage bargaining and businesses’ pricing. She said financial conditions remain restrictive and food inflation, which has been lower than the BoE expected, could still pick up. Wage growth around 3.25% could be consistent with the 2% target over the long term if productivity grows 1% and import-price inflation is normal, she said, but higher energy-related import costs could change that.
Markets on Thursday priced in roughly a 75% chance of a quarter-point BoE rate increase at its November meeting. Governor Andrew Bailey and deputy governors Sarah Breeden and Dave Ramsden also raised the prospect of a hike at last week’s meeting; Bailey said there was no “firm judgement” on what rates would do.
