- Bank of England Monetary Policy Committee member Megan Greene said that while it may take months to assess the economic damage from the Middle East energy price shock, she sees upside risks to inflation as more pressing than the risk of a demand downturn.
- Greene noted that inflation has been above the Bank’s 2% target for most of the past five years and that the effects of earlier shocks, including Russia’s 2022 invasion of Ukraine, had not faded before the Iran war more than doubled natural gas prices.
- She warned against waiting for definitive evidence of second‑round effects as it may be too late to act. The MPC kept rates on hold in March but signalled readiness to act if inflation expectations rise.
A senior Bank of England policymaker has warned that the surge in energy prices caused by the Iran conflict could entrench inflation in Britain, forcing the central bank to remain vigilant despite mounting risks to economic growth.
Speaking at an event on the sidelines of the International Monetary Fund and World Bank spring meetings in Washington, Monetary Policy Committee member Megan Greene said price pressures from energy were the “paramount” factor guiding her thinking on interest rates.
Greene acknowledged that it will take time to gauge the long‑term impact of the energy shock on the UK economy, but she argued that policymakers cannot wait for definitive evidence that higher fuel costs are feeding into wages and other prices.
“We can’t wait to have all the definitive data showing that there are second‑round effects because then we will be too late already, so it will have to be a judgment call,” she said.
The former chief economist at KPMG pointed out that inflation has exceeded the BoE’s 2% target for much of the past five years and that the economy had not yet absorbed the effects of Russia’s 2022 invasion of Ukraine when the Iran war more than doubled natural gas prices.
The BoE’s Monetary Policy Committee unanimously voted to leave interest rates unchanged last month, but Greene’s comments suggest hawkish sentiment within the MPC.
Investors now expect the Bank to deliver one or two quarter‑point hikes this year, although Governor Andrew Bailey recently cautioned that markets may be getting ahead of themselves. Greene underscored that consumer inflation expectations have risen sharply since the start of the war, while business surveys offer mixed signals about price‑setting behaviour.
For energy‑dependent businesses and households, the Bank’s message is a warning that relief from high bills may not materialise quickly and that borrowing costs could rise if inflation expectations become unanchored.
UK gas prices jumped 40% following the outbreak of the war, driving up government borrowing costs and raising the prospect of “demand destruction” similar to what EU officials have warned.
Greene’s emphasis on inflation also highlights the delicate balancing act facing policymakers: raising rates too quickly could stall the fragile recovery, but waiting too long might allow energy‑driven price shocks to feed into wages and rents. As the MPC prepares for its next decision on 30 April, businesses should brace for further volatility in energy and financial markets and assess the impact of potential rate hikes on investment plans.
