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BOE Deputy Governor: Further Rate Hikes Possible If Energy Prices Stay High and Inflation Persists
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Bank of England Deputy Governor Clare Lombardelli stated that if high energy prices persist and there is no clear evidence of inflation falling or economic activity weakening, monetary policy is increasingly likely to need tightening. She noted that wage growth remains too high and inconsistent with the inflation target. Lombardelli emphasized that monetary policy should not mechanically react to energy price fluctuations. She described current policy as restrictive, balancing the need to reduce inflation against the risk of falling demand. The key issue, she said, is not the spot price of energy itself, but the interaction between the underlying economy, sustained high energy prices, and their transmission mechanisms. This interaction will ultimately determine whether the central bank needs to raise interest rates.
Source report
Key points from recent remarks:
- Tightening bias: If high energy prices persist and there is no clear evidence of inflation easing or economic activity slowing, policy will increasingly need to be tightened.
- Wage growth concern: Wage growth remains too high and inconsistent with the inflation target.
- Energy price response: Lombardelli stressed that monetary policy should not mechanically react to energy price fluctuations.
- Policy stance: Monetary policy remains restrictive, balancing the need to reduce inflation against the risk of declining demand.
- Core issue: The critical question is not the spot price of energy itself, but rather the interaction between the underlying economy, persistently high energy prices, and their transmission mechanisms. This interplay will ultimately determine whether the central bank's interest rate needs to rise.
Source
domesticNeutral / independent
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BoE Deputy Governors Warn Persistent High Energy Prices May Force Further Rate Hikes