MNI BRIEF: BOE's Breeden Worried By High Food Price Impact

Bank of England Deputy Governor Sarah Breeden cited the fear of high food prices fueling driving up inflation expectations and the fact that the BOE may be wrong to assume an output gap is opening up as key risks to her central view that disinflation will continue.

"The salience of food price expectation weighs really heavily on me," with a risk that prices were reaching a tipping point and that this could help decide whether the current inflation "hump lasts, whether it turns into a plateau,” Breeden told a question-and-answer session at Cardiff University. Research shows food prices are key determinants of inflation expectations.

Breeden, who backed the most recent rate cut, also acknowledged that while the Bank assumes that an output gap is opening up, data cast doubt on this.

"The nominal indicators in the economy are telling us that there isn't an output gap. Quite the reverse," she said. (See MNI INTERVIEW: UK Labour Market Still Tight - NIESR's Millard )