Breeden Warns Energy Prices May Stay High, Fueling Inflation Concerns

Bank of England Deputy Governor Rachel Breeden expressed concerns about energy prices and their potential impact on inflation. She stated that it's not 'at all obvious' there is a path to lower energy prices, which could lead to higher costs for other goods and services.

Breeden noted that the indirect pass-through of energy price rises has been limited so far, suggesting some slack in the economy. However, she warned that if energy prices stay high long enough, they may affect firms' pricing decisions, leading to a broader impact on inflation.

She emphasized the importance of monitoring firms' pricing plans and cautioned against waiting for conclusive evidence of second-round effects before responding with policy action. Breeden also highlighted the shift in the balance of risk, suggesting that risks are increasingly likely to crystallize, requiring the BOE to respond.