Bank of England Officials Signal Increased Likelihood of Policy Tightening Amid Persistent Energy Price Concerns

• BoE officials warn persistent energy prices may force monetary policy tightening.
• Governor Bailey stated it’s harder to resist rate hikes if energy costs persist.
• Deputy Governors Lombardelli and Breeden highlighted risks from high wage growth and delayed policy response.

Bank of England (BoE) officials, including Deputy Governors Clare Lombardelli and Sarah Breeden, along with Governor Andrew Bailey, have indicated that persistent elevated energy prices could necessitate further monetary policy tightening. On Thursday, Lombardelli stated that policy is increasingly likely to need tightening if high energy prices continue, absent clear disinflation or weaker economic activity, also noting that wage growth remains too high for the inflation target. Breeden echoed this sentiment, observing that while indirect pass-through of energy costs has been limited so far, the longer and larger the energy shock, the more probable a policy response becomes, emphasizing that the central bank cannot wait too long for conclusive evidence of second-round effects. On Friday, Governor Bailey reinforced these warnings, stating it becomes harder to maintain a stance of not raising interest rates the longer high energy costs persist, despite the pass-through remaining “quite subdued” to date. These remarks collectively suggest a shifting balance of risks, making a BoE response to sustained energy inflation increasingly likely in the United Kingdom (UK).