Keeping interest rates high for too long is risky, BoE's Breeden says

LONDON (Reuters) -Bank of England Deputy Governor Sarah Breeden said on Tuesday that a recent climb in headline inflation was unlikely to last and there were risks to the economy if interest rates are kept high for too long.

Speaking shortly after a colleague on the Monetary Policy Committee, Catherine Mann, warned that inflation might be stuck at a high level, Breeden took a contrasting tone in her speech.

"Holding policy too tight for too long comes with costs to output and employment, which could then pull inflation below target," Breeden said in a speech at Cardiff Business School.

She was among the majority of MPC members who at the BoE's September meeting voted to keep borrowing costs on hold at 4% after voting to reduce them by 25 basis points in August in a narrow 5-4 vote by the MPC.

Breeden said the recent "hump" in inflation was unlikely to lead to additional inflationary pressure.

The BoE expects inflation to hit 4% in September before falling only slowly to its 2% target in 2027. But it is also worried about a slowdown in economic growth.

"I do not see evidence that the disinflation process is veering off-track. Instead it remains my central case that the 'hump' will prove just a bump in the road," Breeden said.

However, she said she would focus on how businesses are pricing goods and services, saying that there were still some signs that suggested that the pricing power of firms was consistent with a "high inflation regime".

Also on Tuesday, BoE Deputy Governor Clare Lombardelli said central banks should be careful about assuming that inflation shocks are temporary.

Last week, BoE policymaker Megan Greene warned that price growth in Britain required a cautious approach to further reductions to borrowing costs. But Governor Andrew Bailey reiterated his view that rates would fall.

(Writing by Suban AbdullaEditing by William Schomberg)