The case for another Bank of England interest-rate increase strengthened Thursday after Deputy Governor Clare Lombardelli warned that persistent energy costs could force policymakers to tighten again. In a speech on the inflation outlook, she said the central bank’s latest forecast points to consumer-price growth rising from its current level to about three point seven percent in the final quarter and roughly four point two percent early next year. Most policymakers have not yet judged that an increase is necessary, but Lombardelli said waiting for unmistakable second-round effects has limits when the conditions for broader price pressure are becoming more entrenched.
Her warning builds on the bank’s split decision last week to keep its benchmark rate at three point seven five percent. Six members supported the hold, while three wanted an immediate quarter-point increase. Lombardelli described an economy in which financial conditions are already restrictive and businesses have absorbed more of the energy shock than officials expected. That resilience has delayed the spread of higher costs into other prices, but it may not last. Company hedges expire, margins narrow and wage negotiations can adjust if households begin to expect inflation to remain elevated. The longer oil, gas and electricity prices stay high, she argued, the greater the chance that temporary pressure becomes persistent.
Official figures show why the committee is uneasy. The Office for National Statistics said consumer-price inflation rose to three point one percent in August from two point nine percent in July. Transport, led by motor fuels, made the largest upward contribution, while goods inflation accelerated and services inflation remained firm. Lombardelli said petrol prices had climbed sharply since February and the household energy cap will rise in October, with another substantial increase projected early next year. At the same time, labor-market slack and expensive mortgages are restraining demand. The policy choice is therefore unusually difficult: moving too early could deepen the slowdown, while waiting too long could allow the energy shock to influence wages and everyday prices.
Polymarket participants moved strongly toward a November increase. The contract for no change fell to about seven and a half percent Thursday afternoon, down twenty-three percentage points over the latest day, while a quarter-point increase led the five-outcome event. The selected no-change contract recorded about fifteen thousand dollars in daily activity, and the broader event drew roughly seventy thousand dollars over the same period. Those probabilities are market-implied expectations, not guidance from the Bank of England, but the speed of the repricing shows how Lombardelli’s speech and recent inflation warnings altered the balance of risks.
The committee will receive another inflation report, labor data and evidence on energy costs before its November meeting. A sustained decline in oil and gas prices, weaker hiring or softer wage settlements could justify another hold. Continued energy pressure and signs that firms are passing costs to customers would make a quarter-point increase harder to avoid. Lombardelli’s message was deliberately conditional rather than a promise, yet it narrowed the path for inaction. The next decision now turns on whether Britain’s economy keeps absorbing the shock or begins to transmit it, a distinction that will shape borrowing costs for households and businesses through the winter.
