Published by Global Banking & Finance Review®
Posted on March 26, 2026
3 min readLast updated: March 26, 2026
Add as preferred source on GoogleBank of England Deputy Governor Sarah Breeden sees lower second‑round inflation risk from the Iran‑related energy shock than from Russia’s 2022 invasion, citing rising labour market slack and restrictive interest rates reducing wage‑price pressures.
By Suban Abdulla and David Milliken
LONDON, March 26 (Reuters) - Bank of England Deputy Governor Sarah Breeden said she saw less risk of second-round inflation effects from rising energy prices caused by the Iran war than from Russia's full-scale invasion of Ukraine in 2022, due to greater labour market weakness.
"Where we are now is very different to 2022 when we had the last energy shock," Breeden told an event hosted by the Resolution Foundation think tank on Thursday.
"There's slack in the labour market, and it's rising. And the outlook for activity was lacklustre even before the energy shock," she added, saying this reduced the chance of big wage rises and firms' scope to increase prices much outside the energy sector.
Breeden also highlighted other differences she saw compared with 2022, including how inflation would soon have been at 2%, had it not been for the energy price rise, and how BoE interest rates were already at a level that restricted price growth.
Last week the BoE's Monetary Policy Committee voted unanimously to keep interest rates on hold at 3.75% but policymakers varied in the minutes in how ready they appeared to be to consider a rate hike at future meetings.
Financial markets price in two or three quarter-point rate rises by the BoE - a reaction which Breeden said was "not surprising" given the sharp rise in energy prices.
But she warned against drawing a direct link between higher energy prices and rate increases by the BoE.
BoE Governor Andrew Bailey also said last week that people should be careful about making firm bets that the BoE will raise rates this year, even if cuts were off the table for now.
"You can't draw a straight line between oil and gas prices and the likely path for Bank Rate," Breeden said.
"While of course monetary policy will be influenced by the scale and duration of the shock, the response will reflect that only to the extent to which it impacts the likelihood of second-round effects," she added.
Breeden also said a sharp rise in British government bond yields had remained orderly, despite big daily price swings, with no sign of the market disruption that forced the BoE to intervene in October 2022.
(Additional reporting by Phoebe Seers; writing by David Milliken; Editing by William Schomberg/Keith Weir)
She cites a weaker UK labour market and lacklustre economic activity, reducing the chance of big wage increases and broader price rises.
Unlike 2022, inflation was near the 2% target before the energy price rise, and interest rates are already restricting price growth.
While the BoE held rates at 3.75%, policymakers are cautious, and financial markets anticipate possible rate hikes due to energy prices.
Breeden stated that despite sharp increases, the rise in bond yields has remained orderly without signs of major market disruption.
Breeden warns against drawing a direct link, explaining monetary policy responds only as inflation outlooks are impacted.
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