Bank of England’s Sarah Breeden warns of two-sided inflation risks as public anxiety grows

Sarah Breeden, the Bank of England’s Deputy Governor for Financial Stability, delivered a speech on September 30 that landed squarely on the tension keeping central bankers up at night: inflation is running hot, the public knows it, and the policy response could easily do more harm than good.

UK inflation hit 3.8% in August 2025, with the BoE projecting a peak near 4% in September. That’s double the central bank’s 2% target, and British households are paying close attention.

The public isn’t just watching, they’re worried

A BoE/Ipsos Inflation Attitudes Survey pegged median short-term inflation expectations at 3.2% and longer-term expectations at 3.7%. When consumers start expecting prices to keep climbing, those expectations have a nasty habit of becoming self-fulfilling.

Households aren’t only anxious about rising prices. They’re also worried about their jobs and the broader economy slowing down. According to BoE analysis, household sensitivity to food prices has nearly doubled in recent years. Breeden observed that external shocks, particularly in food and energy costs alongside payroll taxes, have been the primary drivers of the current inflationary wave.

One data point offered a sliver of comfort: only about 10% of households indicated plans to seek higher pay in response to inflation pressures. That matters because wage-price spirals, where rising costs lead to rising wages which lead to rising costs, are the scenario that keeps central bankers reaching for the rate-hike button.

Walking the tightrope

Breeden was explicit about the risks on both sides of the equation. Yes, inflation is elevated. But she cautioned the Monetary Policy Committee against maintaining overly restrictive policy levels for too long, warning that doing so could damage output and employment.

She noted that the labor market currently has enough slack to diminish the potential for significant second-round inflation effects. That’s a meaningful distinction from 2022, when the job market was running considerably tighter and the risk of embedded inflation was more acute.

With the Bank Rate sitting at 3.75% as of late 2026 decisions, the MPC faces a calibration challenge. Hold rates too high for too long, and you risk tipping an already cautious economy into a downturn. Cut too soon, and you validate the public’s expectation that inflation isn’t going away.

What the numbers mean for markets

The gap between actual inflation at 3.8% and the BoE’s 2% target creates a wide corridor of uncertainty for anyone pricing UK assets. Consumer inflation expectations anchored above 3% on both short and long-term horizons suggest the public doesn’t believe the central bank will hit its target anytime soon.

The nearly doubled household sensitivity to food prices that Breeden cited also points to continued pressure on consumer-facing companies, particularly those without pricing power to pass costs through.

The broader takeaway from Breeden’s speech is that the BoE views the current inflationary episode as fundamentally supply-driven and externally generated, not the kind of overheating that demands the policy equivalent of slamming the brakes.