Bank of England Deputy Governor Sarah Breeden expressed surprise at how well the UK economy has absorbed the recent energy price shock triggered by Middle East conflict. Her remarks came after the economy unexpectedly grew in August, driven by strong factory production, ahead of the autumn Budget. Economists had anticipated a 0.1% decline, but the actual data showed resilience despite consumer spending pressures and global economic volatility.
Breeden credited businesses for learning from the 2022 energy shock, with many using hedging strategies to mitigate current impacts. She also noted the positive influence of AI activity, which is supporting economic activity in the UK. However, she cautioned that the full effect of the energy shock might be delayed rather than reduced.
Discussing consumer behavior, Breeden observed a mix of resignation and resilience among UK households. While people are managing costs differently than in 2022, many are still struggling with rising prices. She acknowledged affordability challenges for some but highlighted that overall economic activity remains stable, with a strong labor market.
Consumer Prices Index inflation recently hit a five-month high of 3.1% in August, influenced by higher fuel and airfare costs. The Office for National Statistics will release updated inflation data next week, providing further insight into the cost-of-living situation.