Bank of England policymaker backs rate rise as inflation risks grow
Rising energy costs linked to the Iran war are strengthening concerns inside the Bank of England that broader price pressures could intensify. Megan Greene says the risk of second-round inflation effects is greater than the central bank had expected, reinforcing her view that interest rates should increase.
Highlights
- Bank of England policymaker Greene supports a rate rise due to growing inflation risks and the economy's resilience despite higher energy prices.
- Investors expect the BoE to increase its benchmark Bank Rate by 0.25 percentage points to 4% next month, aligning with global central bank actions.
- Governor Andrew Bailey favors holding rates but acknowledges persistent Iran war could force action despite currently subdued inflation pressures.
Policy outlook and market expectations
According to Reuters, her comments come as the BoE has yet to follow the U.S. Federal Reserve and the European Central Bank in raising borrowing costs in response to the Iran war.Governor Andrew Bailey, who supports keeping rates on hold, has said the longer the conflict continues, the harder it becomes for the BoE to avoid responding, although he also says inflation pressures remain quite subdued. Investors expect the central bank to raise its benchmark Bank Rate by a quarter of a percentage point to 4% next month.
Greene adds that the British economy has shown resilience this year despite the jump in energy prices, strengthening the case for tighter monetary policy. She says it is not clear from the data that the BoE's current stance is meaningfully restrictive.
In our earlier article on economists’ expectations for a Bank of England rate hike to 4%, we noted that persistent inflation pressures and firmer UK data were pushing markets toward pricing a 25-basis-point move at the next meeting. We also highlighted that, while the energy-price shock linked to the Iran conflict had not yet fully fed through to consumer prices, policymakers were increasingly signaling that conditions for tighter policy were falling into place.
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