Probability of Interest Rate Hike Strengthens at Bank of England

Bank of England Deputy Governor Clare Lombardelli stated that if energy prices remain high and the war in the Middle East prolongs, a tighter monetary policy may be required and the possibility of an interest rate hike is strengthening.

Energy Shock and Costs

It was emphasized that companies have so far absorbed some of the rising costs internally, but this capacity is limited. It was noted that a prolonged energy shock could be reflected more in prices.

Inflation and Oil Prices

It was reported that Brent crude is trading around the $106 level and has risen by about 10 percent from Tuesday's weekly low. This movement was stated to bring inflation risks to the forefront once again.

Monetary Policy and Reactions

Lombardelli stated that monetary policy should not mechanically react to energy movements. It was reported that the persistence of price and wage pressures and the weakness in economic activity will be taken into account in the decision-making process.

Wage Increases and Targets

While attention was drawn to the slowdown in wage increases, it was stated that 2027 wage increases could decline further. It was recalled that inflation in the UK has hovered above the central bank's 2 percent target for the past five years.