Bank of England's Bailey Did Not Support Rate Hike at Last Week's Meeting

Bank of England Monetary Policy Committee member Megan Greene said that during last week’s meeting, there was no support for raising interest rates.

Greene stated at a discussion organized by U.S. investment bank Jefferies, “I haven’t had the inclination to raise rates.” She holds a more hawkish stance among the nine Bank of England policymakers.

The Bank of England’s Monetary Policy Committee (MPC) unanimously voted last week to keep rates unchanged and indicated that, as the war between the U.S., Israel, and Iran begins to impact the economy, the central bank is prepared to act to ensure inflation continues to move toward the 2% target.

Some MPC members suggested that a rate hike might be necessary. Greene commented afterward that the risk of persistent inflation may have increased significantly, and UK households could be more sensitive to inflation shocks.

Greene pointed out that rising inflation expectations do indeed increase the risk to the Bank of England’s price stability target, but this is not inevitable. She said, “Rising inflation expectations do not necessarily mean we will face a second-round effect.”

She noted that the purchasing managers’ survey released earlier this week showed a significant increase in input costs for manufacturers. While this does not guarantee that inflation will worsen, it may indicate that risks are rising.

She added that although the labor market is currently weaker than during the full-scale invasion of Ukraine by Russia in 2022, and interest rates are higher, the speed at which companies and workers respond to energy price shocks in terms of wage demands and pricing could be faster than in 2022-2023.

Greene also expressed greater concern about the risk of rising inflation than about demand decline caused by the Iran war.

She further added that energy prices are unlikely to fall back quickly to pre-war levels, partly due to damage to energy infrastructure in the Gulf region, and food prices are likely to remain high.