The remarks in the Financial Times signal that Greene is tilted toward the hawkish side of the BOE’s nine-member Monetary Policy Committee. She warned that Britain can’t yet declare victory in reining in inflation even though those forces have receded in recent months.
“The risk of inflation persistence is diminishing as these indicators come down in line with the MPC’s forecast. But they remain higher than in other advanced economies, particularly the US,” Greene wrote in an opinion piece for the Financial Times published Thursday.
Investors pared back wagers on rate cuts this year. They were also reacting to a surprisingly strong inflation print in the US yesterday. Money markets are pricing 45 basis points of easing in 2024, compared to 54 on Wednesday and 70 on Tuesday.
They’re fully pricing in the first full quarter-point reduction for September, before the US Federal Reserve is expected to begin cutting.
Greene said UK rate bets are moving “in the wrong direction,” warning that the UK faces greater supply constraints than the US. “In my view, rate cuts in the UK should still be a way off as well,” she said.
UK rate-setters are likely to face mounting pressure to move to lower borrowing costs in the coming months. Inflation is expected to fall further from 3.4% in data for March next week before slipping below 2% in April’s figures, though policymakers are still wary over underlying price pressures and rapid wage growth.
Greene’s remarks suggest her views align with hawkish BOE rate-setters, Catherine Mann and Jonathan Haskel. They recently warned that they’re not yet ready to consider reducing rates because of lingering concerns about inflation.
Their caution came after Mann and Haskel dropped their support for further hikes at the last policy meeting in March, joining the majority of the committee in voting to hold rates at 5.25%.
Greene said the UK economy is still much more constrained on the supply side with worse productivity prospects and worker participation rates still well below pre-pandemic levels.
“The UK economy has faced the double whammy of a very tight labor market and a terms of trade shock from energy prices,” Greene said. “Inflation persistence is therefore a greater threat for it than the US. But market pricing for interest rates does not reflect this.”
The minutes for the March MPC meeting noted a range of views among the majority voting to keep policy steady, with one end seeing a “material impact” on inflation from restrictive policy. Governor Andrew Bailey said following the meeting that the UK is “on the way” to rate cuts, saying the policymakers need to “act ahead of time.”
However, rate-setters at the hawkish end have voiced their concerns since the meeting with domestic inflation pressures and wage growth still high.
Mann said markets are pricing in too many interest rate cuts this year, while Haskel also said lower borrowing costs should still be a “long way off.”
