BoE's Lombardelli sees risk that persistent inflation will crystallise

BoE's Lombardelli: Inflation Risks Rising, More Rate Hikes Possible

Bank of England Deputy Governor Signals Further Rate Increases Amid Persistent Inflation

LONDON, Nov 10 (Reuters) - The conditions for persistent inflation in Britain are crystallising, Bank of England Deputy Governor Clare Lombardelli said on Tuesday, signalling she was likely to back another interest rate rise after last week's increase.

Persistent Inflationary Dynamics and Policy Response

"The conditions for persistent inflationary dynamics over the medium term are crystallising," Lombardelli said in a speech delivered at a central banking conference hosted by King's Business School and the Money, Macro & Finance Society.

"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," she added, echoing language from her statement in the minutes of last week's policy decision.

Recent Rate Hike and Voting Patterns

Lombardelli voted as part of the 8-1 majority at the Bank of England last week who raised rates to 4% from 3.75%.

Future Monetary Policy Decisions

"I wouldn't rule December in or out, February in or out," Lombardelli said when asked about her voting intentions for the coming MPC meetings, adding that each meeting was "live".

She said her vote would be affected by developments around the conflict in the Middle East, as well as price and labour market data.

Labour Market and Inflation Expectations

Public Inflation Expectations

The BoE does not see a de-anchoring of longer term public inflation expectations taking place, Lombardelli said.

Labour Market Challenges

The bulk of her speech focused on Britain's labour market, which she said was in "low gear" with reduced rates of both hiring and job turnover. Lombardelli said there was a risk that a given increase in unemployment would put less downward pressure on inflation than before, due to an increased mismatch between workers' skills and employers' needs.

Youth Unemployment Concerns

The problem seemed particularly acute for younger workers aged 18-24, whose unemployment rate had risen more compared to other workers than had been the case elsewhere in Europe.

(Reporting David Milliken, writing by Andy Bruce)