MPC member says inflation risks are "entirely on the upside" as energy shock threatens to push prices higher
Megan Gree
ne (pictured right), a member of the Bank of England's (BoE) Monetary Policy Committee (MPC), has said policymakers should allow time to assess the impact of the Iran war on the economy before taking any decision on interest rates.
Greene noted that the UK's subdued economic growth and a loosening labour market should help contain secondary price pressures stemming from the global energy shock, though she cautioned that inflation had already been showing signs of stalling before the conflict began.
"It's worth waiting for a little while to see what happens with the progression of this war, and therefore see what we can infer about how it will propagate through the economy before we make a move," she said. "We've now had a negative supply shock, an energy shock, and that stands to push inflation up and growth down, which is a terrible situation for a central banker to be in."
Last month, Greene declined to vote for an immediate rate rise, as the MPC voted 8-1 to hold borrowing costs. She was, however, among several committee members to indicate that a future increase remained under consideration, as the Bank attempts to determine whether the current inflation spike could produce a more persistent feedback loop.
At the time the conflict began, the MPC considered monetary policy to be in restrictive territory. A subsequent tightening of financial conditions in markets has provided rate-setters with additional room to wait. Greene acknowledged there were "already some signs of some persistence from previous shocks left in the economy" prior to the onset of the war.
"In my view, the risk is entirely on the upside though," she told Bloomberg’s Odd Lots podcast. "There's kind of a ratchet here. The risk to energy prices and also second-round effects are probably on the upside rather than the downside."
On her decision to hold rates, Greene said "a big contribution was that we are going to get some news over the next six weeks or so."
"A lot of that news will not be definitive evidence of second round effects, but it will be evidence about energy prices, which are a big feed into what's going on with the economy and with inflation," she added.
The Bank may also need to account for the domestic political situation, with Prime Minister Keir Starmer facing a potential leadership challenge. Uncertainty over the direction of government policy has contributed to periodic rises in gilt yields throughout the ongoing political saga, which may be nearing a resolution.
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