Inflation in the UK is still running higher than desired, and the Bank of England is under pressure to bring it down without triggering a damaging slowdown in growth and jobs.
Deputy governor Sarah Breeden, speaking in Cardiff, said inflation is expected to peak at 4% in September due to rising energy and food costs, payroll tax increases, and other price pressures. “It is too high,” she admitted, though she suggested this may be only “a bump in the road” before inflation returns to the 2% target as the labour market weakens.
At the same time, Catherine Mann, an external member of the Monetary Policy Committee (MPC), stressed that household expectations of inflation are drifting away from the official 2% goal. She warned that this undermines the Bank’s credibility and requires stronger action to reassure the public.
The MPC has shown divisions on policy. In August, it struggled to reach consensus before cutting rates, while September’s meeting ended in a 7–2 vote to keep borrowing costs steady at 4%. Markets now expect no major shifts before year-end.
Breeden cautioned that inflation could prove “sticky, not bumpy” if businesses continue to pass on costs or if policymakers misjudge the labour market’s strength. She also warned that holding rates too high for too long could harm output and jobs, potentially dragging inflation below target.
Mann highlighted that after prolonged periods of above-target inflation, UK consumers are changing behaviour — closely monitoring prices and limiting spending when incomes are squeezed. “Consumers are concerned about inflation and increasingly about employment prospects,” she said. Whether households spend more will depend heavily on whether the economy manages to grow or stalls.
For now, the Bank of England faces a delicate balancing act — fighting inflation while trying to avoid damaging consumer confidence and growth.
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