“The risk of failing to act is more severe”: BoE’s Greene signals readiness to raise rates

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“The risk of failing to act is more severe”: BoE’s Greene signals readiness to raise rates

Bank of England policymaker Megan Greene has delivered a clear hawkish signal, stating that the central bank is prepared to raise interest rates further if necessary. In remarks that underscore the ongoing tension between controlling inflation and supporting economic growth, Greene emphasized that the risk of failing to act decisively now outweighs the risk of acting too aggressively.

Greene’s warning: Inaction carries greater cost

Speaking at a conference in London, Greene argued that the Monetary Policy Committee (MPC) must remain vigilant against persistent inflationary pressures. “The risk of failing to act is more severe than the risk of acting,” she said, pointing to stubborn services inflation and a tight labor market as key concerns. Her comments suggest that the MPC is not yet ready to declare victory over inflation, despite recent data showing a slight easing in headline CPI.

Greene’s stance places her among the more hawkish members of the nine-strong MPC, which has held the base rate at 5.25% since August 2023. Markets had largely priced in a first rate cut in mid-2025, but Greene’s remarks inject fresh uncertainty into that timeline.

Why this matters for UK households and businesses

For mortgage holders, businesses, and investors, Greene’s comments signal that borrowing costs may stay higher for longer. The BoE has been grappling with a delicate balancing act: inflation remains above the 2% target, particularly in the services sector, while the economy shows signs of stagnation. A premature rate cut could reignite price pressures, while keeping rates too high risks deepening the economic slowdown.

Labor market and wage growth under scrutiny

Greene specifically highlighted wage growth as a persistent driver of services inflation. Average weekly earnings, excluding bonuses, grew by 5.4% in the three months to November 2024, well above levels consistent with the 2% inflation target. The MPC views this as a sign that domestic price pressures remain embedded, requiring continued restrictive policy.

Additionally, the labor market remains historically tight, with unemployment at 4.2% and vacancies still elevated relative to pre-pandemic levels. Greene argued that until there is clearer evidence of slack, the BoE cannot afford to loosen policy.

Market reaction and forward guidance

Following Greene’s remarks, sterling strengthened modestly against the dollar, while gilt yields edged higher. Investors revised down the probability of a May rate cut from 60% to approximately 45%. Analysts at Goldman Sachs noted that Greene’s comments reinforce the “higher for longer” narrative that has dominated central bank communication globally.

The MPC’s next policy decision is scheduled for March 20, 2025. While no change in rates is widely expected, the tone of the accompanying statement and minutes will be closely scrutinized for further hawkish signals.

Conclusion

Megan Greene’s intervention serves as a reminder that the Bank of England remains in inflation-fighting mode, even as other major central banks, including the Federal Reserve and the European Central Bank, begin to pivot toward rate cuts. For UK borrowers and businesses, the message is clear: the path to lower interest rates is not yet assured, and the MPC will prioritize price stability over short-term economic relief. The coming months will reveal whether Greene’s hawkish caution prevails or whether softer economic data forces a change in course.

FAQs

Q1: What did Megan Greene say about interest rates?
Greene stated that the risk of failing to act against inflation is greater than the risk of acting, signaling the Bank of England is ready to raise rates if needed.

Q2: When is the next Bank of England rate decision?
The next MPC decision is on March 20, 2025. No change is widely expected, but the tone will be important.

Q3: How does this affect UK mortgage rates?
If the BoE keeps rates higher for longer, mortgage rates are likely to remain elevated, particularly for tracker and variable-rate mortgages. Fixed-rate deals may also stay higher as lenders price in prolonged tight policy.

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