Bank of England Deputy Says Inflation Spike Just 'A Mere Bump in the Road'

In a speech yesterday at the Cardiff Business Scholl by the Bank of England’s Deputy Governor for Financial Stability, Sarah Breeden suggested that the recent inflation spike and revised forecast of inflation topping out at 4% pa by the end of year are just ‘humps’ and suggested it may just be “a mere “bump” in the road?”.

She questioned whether this inflation spike was a bump and may be just “sticky not bumpy”.  An interesting analogy considering the state of UK roads.

Inflation went up in August to 3.8% pa and held in that sticky position in September too with revised forecasts that it will peak at 4.0% pa before falling again. Breeden suggested that the increase was due to external factors such a water prices and taxes rising and with last year’s energy price cuts now falling out of the ‘running’ annual calculation total.  She suggests increases in inflation are therefore not linked to domestic price increase pressure.

We have to say we disagree given the energy price cap goes up today and the biggest contributors last month to inflation staying high were: Restaurants and hotels, Food and non-alcoholic beverages, Alcohol and tobacco, Furniture and household goods and Miscellaneous goods and services.  These are all domestic market price rises and not external, ‘outside our control’ factors.  We do agree though that Trump Tariffs have had an impact on pushing prices up globally, but is this by design?

Comment

We accept that that global floods and droughts across the globe have pushed food prices up but never forget, sticky inflation is consistently devaluing huge government debt (including £600bn of pandemic borrowing) in real terms.  5% compounded inflation over a 10 year is a 63% devaluation and then if inflation dropped to just 2% pa for the following 15 years, that would be a total devaluation of sum 85%.  The US and the UK need inflation to devalue debt.

Breedon also suggested that keeping interest rates too high for too long may push inflation below the Bank of England’s 2.0% pa inflation target.  Was she prepping us for an interest rate cut?  Is the Bank of England worried that high interest rates and lack of confidence in the UK government are driving gilt yields up (the interest rate paid by the government on its debt). 

Are they planning an interest rate cut to ease gilt yields and therefore government borrowing costs as the Chancellor cannot afford to keep raising taxes ever higher in the forthcoming Autumn Budget on 26^th November 2025 and needs to stimulate the economy.

We now expect a Bank of England rate cut on 6^th November 2025, less than 3 weeks before the Budget.