BOE's Breeden: Economic Weakness Reduces Risk of Sticky Inflation
Claire Weston
Bank of England Deputy Governor Sarah Breeden said a soft economy and slack in the labour market mean an oil-price shock is unlikely to turn into persistent inflation — but with the US-Iran ceasefire collapsing and crude back near $85, that call faces a fresh test.
Why does Breeden say there is no rush to raise rates?
She cites two factors: a soft economic outlook and spare capacity in the labour market.
This means → even if energy prices rise, businesses struggle to pass costs on fully because demand itself is weak.
In plain terms = the economy is not hot enough for price hikes to stick — so the BoE can wait.
Breeden has voted to hold rates at 3.75% at all three recent meetings, placing her firmly in the dovish camp on the Monetary Policy Committee.
Could the oil-price rebound undermine that view?
The US-Iran ceasefire has effectively collapsed, pushing crude back to roughly $85 a barrel.
Earlier, prices had fallen sharply after a June deal, and the BoE's wait-and-see stance appeared vindicated.
Breeden acknowledged that "the energy-price outlook will be full of uncertainty" but stuck to her core thesis: a weak economy is itself a buffer against second-round inflation effects.
She added a clear caveat: if signs of a price-feedback loop — prices up → wages up → prices up again — emerge, she would support a rate hike.
What does she make of high AI-stock valuations?
Breeden called current AI valuations "perhaps at a reasonable level" but urged all parties to stress-test the downside.
Her exact words: "We have had an excellent earnings season. Maybe earnings will keep beating expectations. But what if they don't? Will share prices fall? Will there be defaults in the bond market?"
This reflects the central bank's stance on the AI rally: it does not deny that fundamentals support the move, but it is watching closely for chain reactions if expectations disappoint.
Why has cyber security moved to the top of the BoE's watch list?
Breeden said the rapid advance of AI models has pushed cyber-security risk to the top of the Bank of England's watch list.
This means → AI is not just an investment theme — it simultaneously amplifies the vulnerability of the financial system to attack.
For the most critical financial institutions, access to the most advanced AI models for building defences is essential — and Breeden confirmed those institutions already have the access they need.
Content is for reference only, not financial advice.