BoE's Greene favors early tightening to limit the damage from inflation

what happened

Megan Greene, a member of the BoE's Monetary Policy Committee, argued on Saturday that moving early to bring inflation under control beats waiting, according to Reuters. In November she voted with the majority to lift borrowing costs to 4% from 3.75%, after earlier being part of a smaller group pushing for a faster increase.

Speaking at a Centre for European Reform event, Greene said that with the inflation outlook highly uncertain, the bigger danger is failing to rein in prices after nearly five and a half years above target. She argued it is easier to ease policy later than to tighten too late. Earlier this week she wrote that the bank should proactively tighten to guard against pay growth stuck near 3.5% or higher.

Chief Economist Huw Pill told the Financial Times in a Saturday interview that rates will likely need to rise further in 2027, beyond the increase expected at the December meeting. Markets are pricing in another hike in December and possibly two or three quarter-point steps next year.

why it matters

For investors, the signal is that the Bank of England is leaning toward further tightening, which typically supports sterling and weighs on gilt prices. Pay and inflation data ahead of the December decision will be the key variables to watch.

market impact

GBP and UK gilts: expectations of tighter BoE policy support sterling and pressure bond prices

• ▲pound sterling pressure up — expectations of further BoE tightening support the currency
• ▼UK gilts pressure down — higher rate expectations push yields up and prices down

tags

instruments