Bank of England rate-setters warn of 'sparks in the tinderbox' as hike bets grow
Two Bank of England deputy governors signalled on Thursday they are edging towards voting for higher interest rates as energy costs raise the risk of stuck inflation.
Two senior Bank of England interest rate-setters suggested on Thursday that they were getting closer to voting for an increase in borrowing costs, as persistently high energy costs raise the risk of inflation getting stuck at high levels, Reuters reported.
Deputy Governors Clare Lombardelli and Sarah Breeden — who both voted to hold the benchmark rate at 3.75% last week — said they were considering shifting position.
“The longer higher energy prices persist, the greater the risk that indirect effects build and that inflation expectations, wage bargaining and price-setting behaviour begin to adjust in response,” Lombardelli said in a speech in Warsaw.
Breeden, speaking at an event in London, sounded a similar warning. “The more sparks we’re throwing in the tinderbox, the more likely we might have to turn the hose on it,” she told the London Macro Policy Forum organised by the National Institute of Economic and Social Research.
The Bank has so far not followed the US Federal Reserve and the European Central Bank, which have raised rates — but it warned last week it might follow suit if the Iran war drags on, predicting British inflation will top 4% early next year, more than double its 2% target.
A third Monetary Policy Committee member speaking on Thursday sounded a less urgent note: Swati Dhingra, one of the strongest advocates of cutting borrowing costs when the Bank was easing, said the extent of long-term inflation pressures from the Iran war would become clearer over the winter months.
Investors are assigning a 75% chance of a quarter-point rate rise at the Bank’s next meeting in November, with another hike fully priced in by February. Governor Andrew Bailey is due to speak publicly on Friday.
Sources
More on this topic: all Business stories
