A Bank of England rate setter has called recent UK growth figures “uncomfortable”, and argued that policymakers should be cautious when cutting interest rates.
Megan Greene, who sits on the Bank’s Monetary Policy Committee, said it is unlikely inflation persistence will “fade on its own accord”, following higher-than-expected forecasts for 2025 price rises last week.
Speaking to lobby group the Institute of Directors, she said that while the process of inflation coming down is “broadly on track”, she echoed governor Andrew Bailey in backing a “cautious and gradual” approach to rate cuts.
The Bank voted to cut the base interest rate by a quarter point earlier in February, bringing it to its lowest level in more than 18 months.
But its quarterly policy report also forecast that the economy would grow only half as fast as previously thought this year.
It also pointed to a much higher peak in inflation this year than expected, of about 3.7% in late summer.
The Bank has been cutting rates since August in response to inflation coming back to its 2% target last year – but price rises are gathering speed again now, largely driven by energy prices.
Some policymakers have sought to play down concerns that the faster rate of inflation could become embedded in everyday prices, but Ms Greene sounded a note of caution.
She said: “The macroeconomic news over recent months has been uncomfortable”, pointing to the higher-than-expected inflation and flatlining growth.
Ms Greene said that if poor growth has been more because of weakening demand relative to supply in the economy, it could require more rate cuts.
But if it is more driven by constrained supply, “then that would sustain domestic wage and price pressures and would require Bank Rate to remain restrictive for longer”.
She added that wage growth and domestic cost pressures have “surprised us on the upside in recent months. This is what I’d expect to see in the face of more constrained supply relative to demand.”
Her comments come after fellow rate setter Catherine Mann voted for a bigger half point rate cut last week.
Ms Mann, whose preference for a bigger cut made her a relative outlier at the Bank’s last policy meeting, argued that inflation rises would be hampered because of a job market downturn.