Megan Greene said that the UK had faced a “double whammy” in dealing with both a tight jobs market and a trade shock
The UK is at a higher risk of long-lasting inflation than Europe or the US, according to a Bank of England rate setter.
Megan Greene has warned that the UK has been hit with a “double whammy” of a tight jobs market and trade shock. She explained that Brexit and the pandemic have left the UK’s supply side weaker than in the US. This would usually mean higher inflation for us, but our demand has been weaker than in the US, which balances things out.
Ms Greene said.: “The UK has faced the double whammy of a terms-of-trade shock even larger and longer lasting than in the EU, alongside a tight labour market like in the US. Inflation persistence is therefore a greater threat here.
“Shocks from Brexit and the pandemic have left UK supply much weaker than in the US in recent years and over the outlook period. All else equal, this would mean inflationary pressures are greater in the UK. But UK demand has been weaker than in the US as well.”
Ms Greene, who is a member of the interest rate-setting Monetary Policy Committee, said that rates were currently “restrictive” in the UK. She said that she was not yet ready to start voting for interest rates to be cut.
Ms Green added: “In light of the persistence of UK wage and services price pressures, which stand out in international comparisons, I think policy will need to remain restrictive for some time in order for inflation to sustainably return to target.
“Recent signs of persistence starting to ease are encouraging, and I judge that current policy is sufficiently restrictive to bring inflation back to target in the medium-term.”
“I would need to see further evidence that inflation persistence is less embedded than previously feared before I would consider voting to loosen policy.”
