Bank of England May Raise Rates as Inflation Risks Rise

Bank of England Deputy Governor Dave Ramsden stated that the central bank may need to raise its key interest rate if inflationary pressures continue to build. While the Bank of England maintained its key rate at 3.75% earlier this month, Ramsden noted that risks to the inflation outlook have tilted to the upside due to both external and domestic factors.

U.K. annual inflation rose to 3.1% in August, exceeding the 2% target primarily because of energy costs. Ramsden argued that rising government bond yields following the start of the U.S.-Iran war helped limit the propagation of energy shocks into broader price increases. However, he warned that high energy prices could eventually trigger higher wage demands and business price hikes.

These comments align with previous warnings from Deputy Governor Clare Lombardelli regarding the impact of sustained high energy prices. The signals reinforce investor expectations that the Bank of England will increase the key rate to 4% in November.