Bank of England’s Lombardelli warns energy shocks may force policy response as UK inflation climbs

Sarah Breeden, Deputy Governor of the Bank of England, is threading a very specific needle: acknowledging that energy prices are pushing UK inflation higher while insisting the central bank won’t reflexively reach for the rate hike lever every time Brent crude ticks up.

The inflation picture is getting uncomfortable

UK CPI inflation sat at 3.1% in August 2026. That number is projected to climb to roughly 3.7% by the fourth quarter and could hit 4.2% by the first quarter of 2027. For a central bank that targets 2%, those figures represent more than a minor inconvenience.

The proximate cause is familiar. Ongoing conflicts in the Middle East have sent energy prices on a volatile ride, with petrol prices jumping from approximately 132p to 172p per litre by September 2026.

The Bank Rate stood at 3.75% as of September 2026. Markets have begun pricing in two to three quarter-point hikes, which would push rates toward the 4.25% to 4.50% range.

Why Breeden says this isn’t 2022

Breeden stated in March 2026 that the current environment is materially different from the energy crisis triggered by Russia’s invasion of Ukraine in 2022. Several factors underpin that distinction. The labor market has more slack than it did in 2022, meaning workers have less bargaining power to demand wage increases that keep pace with rising prices. Economic activity has weakened, reducing the risk that higher input costs get passed along through supply chains. And interest rates are already in restrictive territory.

So far, the indirect pass-through of energy price increases has been smaller than expected, even as the direct effects have tracked closely with forecasts. Energy is making energy more expensive, but it isn’t yet making everything else more expensive at the same rate.

Clare Lombardelli, another senior BoE official, reinforced this assessment in September 2026 remarks, noting the limited indirect transmission while flagging that prolonged high energy prices could force a reassessment.

The policy tightrope

Breeden’s core argument is that monetary policy shouldn’t respond mechanically to energy price movements. What matters is whether an energy price spike bleeds into wages, expectations, and pricing behavior across the economy. Breeden’s message is that the BoE’s reaction function is conditional, not predetermined, and that the conditions it’s watching most closely are wages and inflation expectations rather than crude oil futures.