The conditions for persistent inflation in Britain are crystallising, Bank of England Deputy Governor Clare Lombardelli said on Tuesday, signalling she is likely to back another interest rate rise after voting with the 8 to 1 majority last week to lift Bank Rate to 4.00 percent from 3.75 percent.
“That warranted an increase in Bank Rate last week. In the absence of evidence of weaker inflation pressures, I continue to think there is likely to be a case for a further increase in rates in the near term,” Lombardelli said in a speech at a central banking conference hosted by King’s Business School and the Money, Macro and Finance Society in London. The wording repeats the statement she placed in the minutes of the November 5 decision.
Asked about her voting intentions, she declined to commit either way. “I wouldn’t rule December in or out, February in or out,” she said, adding that each meeting was “live”. Her vote, she said, would be shaped by developments around the conflict in the Middle East and by price and labour market data. In a Guardian interview published the same day she put market pricing for December at about 50/50 and said she did not yet have enough information to decide.
The bulk of the speech dealt with a labour market she described as in “low gear”, with reduced hiring and job turnover. That slack may buy less disinflation than it used to, she argued, because a growing mismatch between workers’ skills and employers’ needs means a given rise in unemployment puts less downward pressure on inflation than before. The problem is sharpest for workers aged 18 to 24, whose unemployment rate has risen more than other groups’ and by more than elsewhere in Europe. She also said the Bank does not see longer term public inflation expectations de-anchoring.
The remarks keep the Bank of England on the same December footing as the Federal Reserve and the European Central Bank, whose officials made parallel cases this week. The Monetary Policy Committee’s next decision is on December 17.