BoE's Breeden says weak growth, labor slack allow rate hold despite oil spike. She would tighten if second-round effects appear.
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Bank of England Deputy Governor Sarah Breeden said the UK's weak economic growth and soft labor market mean the central bank does not need to raise interest rates in response to the recent oil price spike. Speaking to Bloomberg TV, Breeden argued that the rebound in oil prices, driven by renewed conflict between the US and Iran, is unlikely to trigger persistent inflation unless it feeds into wages and corporate pricing.
“We have a softish economic outlook; we have slack in the labor market,” Breeden said. “Those two things mean that that shock is less likely to become embedded and lead to inflationary dynamics that we might need to lean against.”
Breeden, considered one of the more dovish members of the Monetary Policy Committee, said she had expected inflation to return to the Bank's 2% target were it not for the Middle East conflict. Energy prices remain highly uncertain, she added.
Still, Breeden said she would support higher rates if evidence emerges that higher energy costs are feeding into second-round inflation effects. The Bank is not ruling out tighter policy, she said.
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