Lombardelli says persistent energy costs may require rate rise

Bank of England Deputy Governor Clare Lombardelli said policy is increasingly likely to need tightening if elevated energy prices persist, unless there is clear evidence of falling inflation or weaker economic activity. Her warning was conditional: a rate rise is not settled, and she said the impact of energy costs on the wider economy would shape whether the Bank Rate needs to increase. Lombardelli made the remarks in a speech in Warsaw on Thursday. She said prolonged high energy prices could increase the risk that indirect effects build, with inflation expectations, wage negotiations and businesses’ pricing decisions adjusting in response. The key issue, she said, was not energy prices alone but how the shock interacts with the economy and passes through to other prices. She cautioned against reacting mechanically to energy-price movements. The scale and duration of the shock remain uncertain, and policymakers are watching whether higher costs spread beyond energy into wages and broader prices. Clear evidence that inflation is falling or activity is weakening would be a counterweight to the case for tighter policy, according to Lombardelli’s warning.