Breeden Signals Rate Hike on Inflation Risks as Energy Shock Lingers

Bank of England Deputy Governor Sarah Breeden has signaled that policymakers may soon need to raise interest rates in response to growing concerns over inflation risks. The remarks come as energy prices continue to surge, increasing the likelihood of second-round inflation effects on the broader UK economy.

Breeden emphasized that the risk balance has shifted since September, making it increasingly appropriate for monetary policy to address potential second-round inflation effects. She warned that delaying action could lead to regret later, and noted that the larger and longer the energy shock, the more likely it is that material second-round effects emerge.

The Bank of England's stance on interest rates has become firmer as officials weigh the risks of elevated energy costs spreading into wages and other domestic prices. This shift in tone suggests that a stronger case for higher rates may be emerging, which would raise borrowing costs across the UK economy.