Bank of England's Greene says she was not close to raising rates this month

Bank of England's Greene says she was not close to raising rates this month

Bank of England's Interest Rate Decision and Inflation Concerns

By William Schomberg

LONDON, March 25 (Reuters) - Bank of England policymaker Megan Greene said on Wednesday she had not been close to voting to raise borrowing costs at last week's interest rate-setting meeting, which was dominated by the economic hit from the conflict in the Middle East.

Greene's Stance on Rate Hikes

"I wasn't tempted to hike," Greene, one of the more hawkish of the BoE's nine rate-setters, said during a discussion event organised by U.S. investment bank Jefferies.

Last week, the BoE's Monetary Policy Committee voted unanimously to keep rates on hold and said it was "ready to act" to keep inflation on track for its 2% target as the economy feels the impact of the U.S.-Israeli war with Iran. 

Inflation Persistence and Household Sensitivity

While some MPC members said a rate hike might be needed, Greene said in her post-meeting comments that the risk of inflation persistence had risen "perhaps significantly" and that British households may be more sensitive to inflation shocks.

Rising Inflation Expectations

On Tuesday, a survey published by U.S. bank Citi showed inflation expectations among the British public for the coming year had surged by the most in more than 20 years from one month to the next, leaping to 5.4% in March from 3.3% in February.

INFLATION RISK

Greene said on Wednesday that this rise in inflation expectations did increase risks to the BoE's price stability target but that it was not a certainty.

Potential Second-Round Effects

"Just because inflation expectations rise, it doesn't mean that we will get second-round effects of course," she said.

Purchasing Managers Survey and Price Risks

Greene said a survey of purchasing managers published earlier this week, which showed a big jump in prices paid by manufacturers, similarly did not guarantee more inflation "but it could be an indication that there is a higher risk of it."

Labour Market and Economic Response

While the jobs market is weaker than it was after Russia's full-scale invasion of Ukraine and interest rates are higher, any response in wage demands and pricing by companies to the energy price shock could be quicker than in 2022-23, she said.

Wider Economic Impacts and Greene's Voting Record

Energy and Food Prices

Greene also said she was more worried about the risk of higher inflation than lower demand due to the war with Iran.

Energy prices were unlikely to return quickly to their pre-war levels, due in part to the damage inflicted on energy infrastructure in the Gulf, and food prices were likely to stay elevated, she added.

Greene's Previous Votes and Market Expectations

Greene voted against the last two BoE rate cuts in December and August last year and has previously expressed concern about the stickiness of Britain's above-target inflation rate.

Investors on Wednesday were betting on at least two BoE quarter-point rate hikes by the MPC's late-July meeting, down from four hikes over the course of 2026 that were priced in earlier this week but a sharp change from the two cuts expected before the war.

(Reporting by William Schomberg; writing by David Milliken, editing by Andy Bruce)