Bank of England officials split! "Number two" contradicts hawks: businesses are absorbing the energy inflation shock themselves.

Bank of England Deputy Governor Sarah Breeden said UK businesses are seeking to absorb the energy shock themselves and cut costs rather than pass on price increases to consumers even as two other officials appeared to make the case for raising interest rates. Breeden's remarks suggest she is cautious about the need for a rate hike. She noted that a weak labour market is suppressing wage pressures, while the private sector has shown resilience after yet another unexpectedly solid GDP reading published earlier on Thursday. "What's really different now compared to the last energy shock in 2022 is that people aren't looking to pass on costs," she said in an interview in Bangkok on Thursday. "When I go and talk to businesses, many of them have hedged, which means they're feeling less of a shock now than they otherwise might." Breeden's tone is more dovish than many of her colleagues who have hinted they are leaning towards supporting a rate hike as early as next month. Earlier on Thursday, fellow BoE policymaker Megan Greene made the case for raising rates to "guard against the risk of second-round effects". Greene, who was in the minority when she voted for an immediate rate hike last month, said there was growing evidence that the UK economy's "spare capacity may have peaked", citing this morning's stronger-than-expected GDP data. "The potential for second-round effects to seep in is actually quite high," she said at an event in the Thai capital, where the IMF is holding its annual meetings. At another event, BoE Chief Economist Huw Pill a prominent hawk on the Monetary Policy Committee warned that upcoming wage settlements posed a threat: the negotiations are taking place as inflation is expected to breach 4 per cent early next year. He said activity and the labour market were showing resilience in a supply-constrained economy. Traders are betting that a renewed spike in oil and gas prices will force the UK central bank into its first rate hike in more than three years in November. Governor Andrew Bailey, a key swing vote, has said the longer the energy shock and Middle East conflict drag on, the harder it will be to avoid higher interest rates. BoE officials say there is still little evidence of broad-based inflation spreading through the economy, while Thursday's GDP data pointed to another strong performance in the third quarter. Breeden said businesses had "learned the lessons" the last energy shock came four years ago when the Russia-Ukraine war broke out. "We've been surprised by how well the economy has absorbed what has been a pretty sizeable energy price shock so far," she said. "What's encouraging is I have a sense as we saw in this morning's GDP data that activity hasn't fallen off a cliff. The labour market is coming through this, and businesses' willingness to absorb the shock themselves rather than pass it on makes our job as policymakers monitoring the situation slightly easier in this uncertain period." However, she stressed that it remained an open question whether the impact of the energy shock had been dampened or merely delayed.