Bank of England policymaker Megan Greene said on Tuesday that the case for raising interest rates has become more compelling as the conflict in Iran persists, heightening the chance of broader price increases across the economy.
Greene was among the 8-1 majority on the BoE's Monetary Policy Committee who chose to maintain the Bank Rate at 3.75% in April. At that meeting she signaled that "an increase in Bank Rate may be necessary in upcoming meetings." The language reflected a view that a pause did not preclude future tightening if inflationary pressures intensified.
Speaking in a prepared address for the University of Derby business school on Tuesday, Greene expanded on that position, saying earlier action might be needed to demonstrate the central bank's commitment to returning inflation to its 2% target. In text released by the BoE, she said: "I think the case for hiking rates grows as the conflict wears on and believe a tightening in monetary policy over the next few weeks or months may be necessary," underscoring the link she sees between ongoing geopolitical developments and inflation risks.
Greene stressed that the speed of the BoE's response to inflationary threats matters as much as the size of any rate move. She warned that waiting for conclusive evidence that the Iran war has affected inflation could result in monetary policy action coming too late to prevent a wider rise in prices.
The remarks outline a cautious but prepared stance: maintain current rates while signalling readiness to act if the external shock from the conflict transmits into broader price pressures. Greene's emphasis on timing and commitment to the inflation target frames the case for potential near-term tightening, should the risk evolve as she described.
Summary
Megan Greene, a member of the BoE's Monetary Policy Committee, said the argument for raising the Bank Rate is strengthening as the Iran conflict continues and risks pushing up prices across the economy. She was part of the 8-1 majority that left rates at 3.75% in April but has warned that an increase in the coming meetings may be required. Greene highlighted that acting promptly to inflation threats is as important as how large any increase would be, and that waiting for definitive proof of the conflict's inflationary effects could mean acting too late.
Key points
- Greene said the case for higher interest rates has strengthened as the Iran conflict endures, increasing the risk of broader price rises across the economy.
- She was part of an 8-1 majority that held Bank Rate at 3.75% in April but previously indicated that "an increase in Bank Rate may be necessary in upcoming meetings."
- Greene emphasized that the BoE's response speed to inflation threats is as important as the size of any rate move, and cautioned that waiting for definitive proof of the conflict's inflationary impact could lead to delayed action.
Sectors potentially affected
- Broad economy - Greene linked the conflict to the risk of wider price increases across the economy, which could influence consumer prices and aggregate demand.
- Financial markets - Statements from a BoE policymaker on potential near-term tightening may affect interest rate expectations and market pricing.
Risks and uncertainties
- Ongoing Iran conflict - Continued geopolitical tensions could drive broader inflationary pressures across the economy, creating uncertainty for price stability.
- Timing of policy response - Waiting for conclusive evidence that the conflict has affected inflation could result in monetary policy acting too late to prevent wider price rises.
- Magnitude versus speed - The balance between how quickly the BoE acts and how large any rate move should be remains uncertain, according to Greene's remarks.