Sept 24 (Reuters) – Bank of England Deputy Governor Clare Lombardelli said on Thursday that interest rates will likely have to rise if energy prices stay elevated, unless there is clear evidence of a weaker economy.
“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 given at the Sixth Biennial Conference on Macroeconomic Policy, Warsaw.
“On that basis, policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity.”
Lombardelli added that she was not saying monetary policy should react mechanically to energy prices but instead counter the risk that they start to feed through into inflation expectations, wage bargaining and price-setting.
(Reporting by Andy Bruce; Editing by Alexandra Hudson)
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