Greene Advocates Cautious Approach to UK Rate Cuts Amid Inflation Risks

LONDON — Bank of England (BoE) policymaker Megan Greene said on Wednesday, 24 September, that a cautious approach to further interest rate cuts is warranted due to growing risks that inflation in Britain could be more persistent than the central bank has anticipated. Her remarks, made in a speech published by the BoE, provide insight into the ongoing debate within the Monetary Policy Committee (MPC) regarding future policy direction.

Greene, who last week voted with the majority of the MPC to keep the central bank’s benchmark Bank Rate at 4%, has previously expressed a more hawkish stance. She opposed the quarter-point cut that was approved in a narrow 5-4 decision in August, making her a consistent voice for prudence.

In her speech, she stated that "the risks to our inflation outlook have shifted to the upside," citing a need to move beyond the traditional view that supply shocks, such as the COVID pandemic and the invasion of Ukraine, are temporary. She believes these factors should be considered in monetary policy decisions going forward.

Furthermore, Greene indicated that she is less concerned about a rapid weakening of the labour market than she was a year ago. This suggests that the BoE may have more leeway to focus on inflation control without undue concern for unemployment. Britain currently has the highest inflation rate among the Group of Seven (G7) economies, with the rate standing at 3.8% in August.

The BoE has a challenging path ahead, projecting that inflation will peak at 4% in September before a prolonged decline, eventually reaching the central bank’s 2% target only in the spring of 2027. This extended timeline underscores the complexity of the inflationary pressures facing the British economy.

The comments come at a time when other senior BoE officials are also weighing in on the economic outlook. Huw Pill, the BoE's chief economist, recently indicated he was more comfortable with the outlook for price pressures, while Governor Andrew Bailey has reiterated that further rate cuts are likely, though the exact timing and magnitude will be determined by the path of inflation.

Greene's speech adds a layer of caution to these discussions, reinforcing the message that while rate cuts are possible, they will not be rushed and will be heavily dependent on incoming data.