Sarah Breeden, deputy governor for financial stability and seen as a swing vote on the MPC, told the London Macro Policy Forum that persistent energy shocks raise the odds of knock‑on price and wage effects policymakers need to address. "The larger and longer the shock, the more likely it is we will see the material second-round effects policy needs to respond," she said, adding, "As risks crystallize it's increasingly appropriate for bank rate to respond."
Clare Lombardelli, the deputy governor responsible for monetary policy, speaking in Poland, noted that firms have so far shouldered higher energy bills but that capacity is limited if the shock endures. "Policy is increasingly likely to need to tighten if elevated energy prices persist, absent clear evidence of disinflation or weaker activity," she said. She cautioned against reacting "mechanically" to energy swings, arguing officials must judge whether "the conditions for those indirect and second-round effects are becoming more entrenched."
Their remarks came a week after the MPC, by a 6-3 margin, left rates at 3.75%, a decision that followed increases by the US Federal Reserve and the European Central Bank as energy costs pushed inflation higher. Both Breeden and Lombardelli voted to hold at that meeting, so any shift by the pair could tilt the committee toward tightening.
Money markets are nearly fully pricing a 0.25 percentage point move in November that would lift Bank Rate to 4%, and they imply about a 60% probability of another increase in December. Pricing references the overnight index swap curve, while CPI projections cited come from Bloomberg Economics using ONS and Bank of England data. Their comments landed as global bonds faced renewed pressure with Brent near $107 and roughly 10% above Tuesday's week‑to‑date low, amid rising concern that the US‑Iran war could broaden.
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Both deputies said second‑round effects have taken longer to show up than expected, but they pointed to the Bank of England's survey of wage settlements and other inflation gauges as potential swing factors before year end. Breeden also noted the bank's near‑term inflation outlook for early 2027 "has gone from 3.2% to 4% or a little bit higher."
Earlier the same day at the London Macro Policy Forum, MPC member Swati Dhingra flagged inflation risks from higher winter energy costs and early wage‑settlement signs, but indicated she would wait, saying she would resist a "clamor" to raise rates given the "weakening economy." For your money, the takeaway is simple: if energy keeps punching up prices and policymakers lean hawkish, borrowing costs could stay higher for longer, which affects everything from mortgages to the returns you expect on cash-like assets.
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