BoE's Greene says inflation risks exceed forecasts and still backs a rate rise

what happened

Reuters reports that Bank of England policymaker Megan Greene believes the energy price spike linked to the Iran war could feed into broader inflation more than the central bank expects. Greene is part of the minority on the Monetary Policy Committee voting for higher rates, and she argues it is better to act early against so-called second-round effects and adjust later if needed.

In a speech at the London School of Economics on Tuesday, she said wage growth appears faster than official data suggests, and pay deals in early 2027 could land above expectations with inflation near 4%. She also pointed to the economy's resilience this year despite higher energy costs, which in her view strengthens the case for costlier borrowing. She questioned whether current policy is truly restrictive.

While the Federal Reserve and the ECB have lifted borrowing costs in response to the war, the BoE has held off. Governor Andrew Bailey favours keeping rates steady but warns that waiting becomes harder the longer the conflict lasts. Markets anticipate a quarter-point increase to 4% next month.

why it matters

For sterling and UK gilts, hawkish comments from a committee member raise the odds of a longer tightening cycle, which tends to support the pound and weigh on bond prices. For equities, higher borrowing costs add pressure on valuations, especially for companies sensitive to interest expenses.

market impact

GBP and gilts: hawkish signals lift expectations for a BoE hike, supporting sterling and pressuring bond prices

tags

instruments