BoE MPC member Megan Greene said in a speech overnight that UK inflation remains an outlier among developed peers, with headline CPI running above target for over four years and rising again over the past year. She noted that disinflation has been concentrated in rate-sensitive sectors, suggesting “the bulk of disinflation may have already come through”, while labor market slack has emerged.
Greene argued that the data has the “hallmark of an adverse supply shock,” but said second-round wage effects are unlikely to pose major risks as the labor market loosens. She added that while risks from trade persist, they have eased somewhat, and GDP growth is expected to rebound without a sharp deterioration in jobs.
She stressed two lessons from recent supply shocks: when inflation persistence is uncertain, policymakers should prioritize inflation to prevent it from becoming entrenched, and that prices may respond faster than output when inflation is elevated.
Against that backdrop, she said “an appropriate response to the uncertainty and risks we are currently facing should involve a cautious approach to rate cuts going forward”, reinforcing her vote last week to keep Bank Rate at 4%.
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