Central bankers rarely sound relieved when growth falters. Yet on 15 July Sarah Breeden, deputy governor for financial stability at the Bank of England, suggested that the very weakness of the UK economy might be doing some of the disinflationary work policymakers usually demand higher rates to achieve.
In a Bloomberg TV interview she observed that the current backdrop reduces the risk of inflation becoming sticky through wages and price-setting behaviour. The remark lands at a moment when energy prices have climbed following the effective breakdown of a US-Iran truce, yet Breeden indicated there is little justification for raising interest rates in such conditions.
Her comments, made the day before the Bank released the recorded interview at 09:30 on 16 July, point to a tension familiar to anyone watching monetary policy committees: how to weigh lingering price pressures against clear signs of softening demand. Labour-market conditions have loosened. Business activity remains subdued. In that setting, second-round effects from wages appear less threatening than they did when vacancies were everywhere and pay settlements kept ratcheting up.
The deputy governor's assessment quietly reinforces the case for caution. Premature tightening would squeeze private enterprise and household finances at precisely the point when confidence is already fragile. Better, her logic implies, to let the economy's own fundamentals, productivity trends and business investment decisions, shape the path ahead rather than layering on restrictive policy out of habit.
This stance contrasts with the instinct in some quarters to reach for rate hikes at the first sign of external cost shocks. Energy prices may be rising, but Breeden's reading suggests the domestic transmission mechanism is weak enough that the Bank can afford to wait. Markets, ever attentive to nuance from Threadneedle Street, will parse her words for clues about the next MPC vote.
