Breeden Warns of Two-Sided Inflation Risks for UK Policymakers

Bank of England Deputy Governor Sarah Breeden has warned that policymakers face risks from both persistent inflation and excessively restrictive interest rates.

In a recent speech, Breeden noted that household expectations remain elevated, with median one-year inflation expectations reaching 4% in the Bank's May 2026 Inflation Attitudes Survey. Two-year expectations were 3.5%, while five-year expectations stood at 3.9%. The central bank's inflation target is 2%.

UK headline inflation reached 3.8% in August 2025 and was expected to approach 4% in September, with food-price inflation standing at 5.1% due to factors such as agricultural commodity prices and adverse weather. About 40% of the United Kingdom's food is imported, making domestic prices sensitive to global markets.

Breeden also warned that holding interest rates too high for too long could weaken the economy, saying 'Holding policy too tight for too long comes with costs to output and employment, which could then pull inflation below target.'