By Andy Bruce (Reuters) - Bank of England policymaker Megan Greene on Wednesday advocated a cautious approach to cutting interest rates, and said it was looking increasingly likely that policy would
BoE's Greene Advocates Cautious Rate Cuts Amid Inflation
By Andy Bruce
(Reuters) - Bank of England policymaker Megan Greene on Wednesday advocated a cautious approach to cutting interest rates, and said it was looking increasingly likely that policy would need keep leaning against persistent inflation pressure.
Greene, an external member of the Monetary Policy Committee who voted with the majority to cut interest rates last week by a quarter point rather than a half point, is viewed as one of its more hawkish voices.
In a speech to the Institute of Directors, Greene said she thought constrained supply capacity, rather than weak demand, explained the recent poor performance of Britain's economy.
"That is to say it's less likely inflation persistence will fade on its own accord, and more likely monetary policy will need to remain restrictive," Greene said.
"As a result, I believe it is appropriate to maintain a cautious and gradual approach to removing monetary restrictiveness."
The speech showed she was among the MPC members who wanted a "cautious" stance to cutting interest rates, rather than merely a "careful" approach that became the central bank's adopted message last week.
The BoE predicted inflation would peak at around 3.7% in the third quarter of this year. Governor Andrew Bailey said this was unlikely to cause second-round effects, where past inflation increases feeds into future price increases.
Greene expressed scepticism towards that view, pointing out that inflation looked likely to spend a fifth consecutive year above the BoE's 2% target.
"That may lower the threshold above which even a short-term rise in inflation feeds through into second-round effects," Greene said.
She also questioned the BoE's view that dire potential productivity growth last year - which determines the rate at which the economy can grow before generating inflationary pressure - will recover over the next few years.
"I think there is a considerable risk this recovery will remain elusive," Greene said.
(Reporting by Andy Bruce; Editing by Sachin Ravikumar and David Milliken)
