Investing.com -- Bank of England Deputy Governor Sarah Breeden cautioned on Tuesday that maintaining high interest rates for an extended period could harm the economy and push inflation below target.
"Holding policy too tight for too long comes with costs to output and employment, which could then pull inflation below target," Breeden said in a speech at Cardiff Business School.
Breeden, who was part of the majority that voted to keep rates at 4% during the September Monetary Policy Committee meeting, noted that the recent rise in headline inflation was likely temporary. The central bank expects inflation to reach 4% in September.
She described the recent inflation increase as a "hump" that was unlikely to generate additional inflationary pressure in the economy. Breeden added that the underlying disinflationary process appears to be on track, though policymakers face a balancing act.
The deputy governor expressed some concern about the significant rise in household inflation expectations since the lows of 2024. She warned that if expectations continue to increase alongside further food price rises, this "could be a cause for concern."
The Bank of England is currently weighing inflation concerns against signs of slowing economic growth as it determines its future interest rate policy. The central bank had previously cut rates by 25 basis points in August before holding steady in September.
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Investing.com -- Bank of England Deputy Governor Sarah Breeden cautioned on Tuesday that maintaining high interest rates for an extended period could harm the economy and push inflation below target.
"Holding policy too tight for too long comes with costs to output and employment, which could then pull inflation below target," Breeden said in a speech at Cardiff Business School.
Breeden, who was part of the majority that voted to keep rates at 4% during the September Monetary Policy Committee meeting, noted that the recent rise in headline inflation was likely temporary. The central bank expects inflation to reach 4% in September.
She described the recent inflation increase as a "hump" that was unlikely to generate additional inflationary pressure in the economy. Breeden added that the underlying disinflationary process appears to be on track, though policymakers face a balancing act.
The deputy governor expressed some concern about the significant rise in household inflation expectations since the lows of 2024. She warned that if expectations continue to increase alongside further food price rises, this "could be a cause for concern."
The Bank of England is currently weighing inflation concerns against signs of slowing economic growth as it determines its future interest rate policy. The central bank had previously cut rates by 25 basis points in August before holding steady in September.
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Bank of England’s Breeden warns against keeping rates high for too long
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