BOE’s Greene Reinforces Case for Cautious Interest-Rate Cuts

Bank of England policymaker Megan Greene said underlying inflation pressures in the UK are too high for comfort as she made the case for a cautious approach to cutting interest rates.

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Bloomberg News

Irina Anghel and Andrew Atkinson

Published Nov 18, 2024  •  2 minute read

Megan Greene, member of the monetary policy committee of the Bank of England, during a Bloomberg Television interview in London, UK, on Thursday, Nov. 16, 2023. Greene said interest rates will need to remain higher for longer to control inflation and that the structure of the UK economy may have changed since the Covid-19 pandemic. Photo by Hollie Adams /Bloomberg

(Bloomberg) — Bank of England policymaker Megan Greene said underlying inflation pressures in the UK are too high for comfort as she made the case for a cautious approach to cutting interest rates. 

Speaking at an event in London on Monday, Greene said inflation was coming down but the battle to keep it on track is not yet over. 

“Services inflation hasn’t been coming down as quickly as I’d like to see,” she said. “Wage growth is higher than what we would like to see for an inflation target of 2%. There’s some risk that wage growth might be stickier than we would hope, and consequently services inflation and overall inflation might be too.”

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“The risk of cutting too early or too aggressively is a greater risk than going a bit more slowly,” she added. 

The comments cement her status as one of the more hawkish members of the Monetary Policy Committee, which has cut interest rates only twice this year and signaled it is in no hurry to take monetary policy out of restrictive territory. 

Her backing for the quarter-point rate reduction delivered this month was her first vote in favor of cheaper borrowing since joining the nine-member rate-setting panel more than a year ago.

Greene was speaking two days before official figures are forecast to show inflation climbed back above the 2% target last month, driven by higher energy prices. Policymakers are expected to focus on the services sector for confirmation that underlying price pressures are moderating. The BOE and many economists expect services inflation to remain stubbornly high at around 5%.

Governor Andrew Bailey and other officials are expected to reinforce their steady-as-she-goes message on rates when they appear before lawmakers on Tuesday. They are certain to be grilled on the expansionary budget announced by the new Labour government on Oct. 30 and Donald Trump’s plan to slap tariffs on goods exported to the US. Both threaten to complicate the BOE’s price stability mission.

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Traders have all-but ruled out a further rate in December, and are only fully pricing in two more reductions by the end of 2025 with a 60% chance of a third. That would leave the BOE marginally trailing the easing cycle of the Federal Reserve and well behind the European Central Bank. 

Greene made her comments in a discussion on the future of inflation hosted by the London School of Economics, the European Institute and the Official Monetary and Financial Institutions Forum.

She said feedback from firms suggests wage growth could end up being closer to 4% than 2%. The budget meanwhile will add to inflation. A big rise in payroll taxes for firms would push up the cost of employment, though it remains unclear how companies will respond, she said.

Companies “might go ahead and push higher costs through to end users, so that would involve higher prices,” Greene said. “Firms could also respond to this by reducing employment, or they could just reduce hours worked.”

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