Bank of England Deputy Governor Sarah Breeden suggested that the recent rebound in oil prices is unlikely to trigger persistent inflation, arguing that the UK’s weak economic backdrop should prevent higher energy costs from feeding into wages and broader price-setting behaviour. Speaking to Bloomberg TV, Breeden acknowledged that renewed fighting between the United States and Iran has once again clouded the inflation outlook, but indicated that monetary policy does not need to respond unless there is evidence of second-round inflation effects becoming embedded.
“We have a softish economic outlook; we have slack in the labor market,” Breeden said. “Those two things mean that that shock is less likely to become embedded and lead to inflationary dynamics that we might need to lean against.” The remarks reinforce the Bank’s current wait-and-see approach.
Breeden, one of the more dovish members of the Monetary Policy Committee, noted that she had expected inflation to return to the Bank’s 2% target were it not for the renewed conflict in the Middle East. While acknowledging that energy prices remain highly uncertain, she stressed, “I said back in June that I expected the outlook for energy prices to be uncertain, and I think that has proved to be the case.”
Even so, Breeden made clear that the BoE is not ruling out tighter policy if inflation proves more persistent. She said she would support higher interest rates should higher energy costs begin feeding into wages and corporate pricing decisions, creating a broader inflation feedback loop.
