Bank of England Deputy Governor Clare Lombardelli has said she would not rule out voting for a further interest rate rise in December, days after the Bank raised rates to 4% from 3.75% in its first increase since August 2023. In an interview with the Guardian published on Tuesday, Lombardelli said the decision would depend on what the Bank sees in the coming weeks on the conflict in the Middle East, energy prices and the wider economic data.
"I think it depends what we see on the conflict and the energy prices and it depends what we see in the wider data and how all that fits together," Lombardelli told the newspaper, referring to the possibility of a further hike in December. "But I wouldn't rule it out. Equally, I don't have enough information just yet."
Lombardelli voted with the 8-1 majority last week to raise rates, and the minutes of that meeting said a further rate hike was likely to be needed in the near term. Her comments are the clearest signal yet that the Bank's Monetary Policy Committee is prepared to tighten again before the end of the year if the data justify it, even though the economy is barely growing.
The backdrop to the decision is the war in the Middle East, which has pushed global fuel prices sharply higher in recent months and prompted Tehran to close the Strait of Hormuz, a vital shipping route for oil and gas. Energy costs are feeding through into inflation in Britain, complicating the Bank's task of bringing price rises back under control without crushing what little growth there is.
Lombardelli also warned that young people in Britain are bearing the brunt of what she called a "low-gear economy", as employers hold back from hiring amid the fallout from the war and the uncertainty it has created. Britain's jobs market cooled further in October, with hiring for permanent roles falling for the first time in four months, according to a survey by the Recruitment and Employment Confederation and KPMG published on Monday.
The rate rise last week came against a difficult fiscal backdrop. Chancellor John Healey unveiled his Autumn Budget on October 28, the first under Prime Minister Andy Burnham, who became Labour leader and prime minister three months ago. The budget promised 20 million households a one-off payment of £100 towards their energy bills, and raised the National Minimum Wage and National Living Wage by 3.9% from April. But the Office for Budget Responsibility said it expected no growth in real earnings next year, underlining how squeezed living standards remain.
For households, the prospect of another rate rise so soon after the last one will be unwelcome news. Higher rates feed through into mortgage costs and borrowing, and many families are already struggling with bills that have risen sharply over the past two years. For savers, by contrast, higher rates offer some relief, although the return on savings rarely keeps pace with inflation.
The Bank's dilemma is a familiar one: raise rates to tame inflation and risk deepening the slowdown, or hold steady and risk letting price pressures become embedded. Lombardelli's insistence that she does not yet have enough information suggests the committee is genuinely divided, and that the data released between now and the December meeting — on inflation, wages, jobs and energy prices — will be decisive.
Markets will now watch the Bank's next communications closely for further hints. A second rise in as many meetings would be a marked shift from the cautious approach the Bank had taken for much of the past three years, and would signal that policymakers believe the inflationary shock from the Middle East conflict is serious enough to warrant an unusually rapid response.
For now, the message from Threadneedle Street is one of open-mindedness rather than commitment. Lombardelli has neither promised a hike nor ruled one out, and has made clear that the decision will be driven by the evidence. In an economy as fragile as Britain's, that evidence — and the war that is shaping it — will be watched with unusual intensity over the coming month.
