BoE’s Greene: Evidence on cooling inflation is prerequisite for rate cut

Bank of England policymaker Megan Greene has stated that she will not vote to cut the cost of borrowing until more evidence of inflation returning to the central bank’s target is found.

Greene believes that UK monetary policy will need to remain restrictive for some time for inflation to sustainably return to 2% from 4% now. Official data published on Thursday showed that the UK economy entered a technical recession in the final quarter of last year, contracting more than expected by 0.3%.

Markets are pricing that the BoE will start cutting its benchmark rate in June, taking it to 4.5% by the end of the year.

Greene noted that while the market-implied path for interest rates in the UK and the US was similar, “UK inflation is stickier than that in the US and this may not be reflected in the market pricing of rate paths.”

Last month, UK inflation was unchanged at 4.4%, higher than 3.1% in the US and 2.8% in the eurozone. Greene also noted that price growth was above target in all three economies because of the persistence of services inflation, which is closely watched by policymakers.

Greene’s remarks echo comments last week by Catherine Mann, who said the UK was set to lag behind its peers in returning inflation to target and argued for rates to rise further. Mann, who said the UK was set to lag behind its peers in returning inflation to target and argued for rates to rise further, said the BoE needs at least one more inflation data print before deciding next moves.