“You can’t wait too long”: BoE’s Breeden warns on rate hikes amid energy shock

• BoE’s Sarah Breeden says a path toward lower energy prices is far from certain.
• The indirect pass-through from higher energy prices has remained limited so far.
• A larger and longer-lasting energy shock would increase the likelihood of a monetary policy response.

Bank of England (BoE) Deputy Governor Sarah Breeden said on Thursday that it is “not at all obvious” that there is a path toward lower energy prices, according to Reuters.

Breeden noted that the indirect pass-through from higher energy prices has remained limited so far, potentially reflecting slack in the United Kingdom (UK) economy. However, she warned that the larger and longer the energy shock persists, the more likely it becomes that monetary policy will need to respond.

The BoE policymaker added that the balance of risks has shifted and that a response from the central bank would become increasingly likely if those risks materialize. She also cautioned that policymakers cannot wait too long for conclusive evidence of second-round effects on prices.

Key takeaways

Not at all obvious that there is a path to lower energy prices.

Indirect pass through of energy price rises limited so far, suggests slack in economy.

The larger and longer the energy shock, the more likely policy will need to respond.

Balance of risks has shifted, if risks crystallise increasingly likely BoE will need to respond.

You can't wait too long for conclusive evidence of 2nd round effects.

I like to focus on what firms say about how they're approaching pricing decisions.

DMP survey, PMI, agents' survey are important for me.

Market reaction

Breeden’s comments have little immediate impact on the British Pound (GBP). GBP/USD remains under downward pressure, losing 0.12% on Thursday to trade around 1.3220 at the time of writing.