Bank of England Deputy Governor for Financial Stability Sarah Breeden warned that UK inflation remains well above target while overly restrictive interest-rate policy could weaken output and employment. Inflation reached 3.8% in August 2025, and the central bank projected a peak near 4% in September, compared with its 2% target. BoE/Ipsos survey data showed median inflation expectations of 3.2% over the short term and 3.7% over the longer term. Breeden said external shocks involving food, energy and payroll taxes drove the current episode, while household sensitivity to food prices has nearly doubled. Only about 10% of households planned to seek higher pay, limiting the immediate risk of a wage-price spiral. She said labor-market slack could reduce significant second-round inflation effects, distinguishing the current conditions from 2022. With Bank Rate at 3.75% as of late 2026 decisions, the Monetary Policy Committee faces a difficult balance between containing inflation and avoiding unnecessary damage to growth and employment. The speech framed the episode as primarily supply-driven and externally generated rather than an overheating economy requiring aggressive monetary tightening.