BoE's Greene calls for pre-emptive tightening as wage growth stays hot

Bank of England rate-setter Megan Greene wants the central bank to move before inflation digs in. Writing in the Financial Times on Wednesday, the Monetary Policy Committee member said it would be correct to proactively tighten the stance of policy, pointing to forward-looking measures that suggest wage growth settling at or above 3.5% through 2027.

That's above the level Greene says is needed to keep inflation near 2%. Her worry is slack — or the lack of it. She argued the economy has less spare capacity than policymakers assumed, raising the odds that pay growth gets stuck high and companies push those costs onto customers.

Her FT piece is the latest signal that the MPC's hawkish wing is still pushing. On 10 November, Deputy Governor for Monetary Policy Clare Lombardelli said there is likely to be a case for more near-term hikes, describing inflation risks as tilted to the upside with a bigger, longer energy shock, resilient activity and disinflation that appears to be stalling. She tied any decision to how pricing, activity and slack data land alongside energy.

Governor Andrew Bailey has sounded the same note. On 5 November he said the central bank would have raised rates even had it known how Middle East developments would unfold, citing inflationary pressure already building, and that the day's hike did not look likely to be its last unless the Iran conflict is resolved. He said businesses are reporting tough operating conditions and struggling to pass on higher costs.

That hike came the same day: a 25 basis point increase to 4%, the BoE's first since August 2023. Eight MPC members backed it, while one voted for a bigger move to 4.25%.