"The risk of failing to act is more severe than the risk of acting": BoE's Greene signals readiness to raise rates

Megan Greene, a member of the Bank of England's (BoE) Monetary Policy Committee (MPC), warned on Tuesday that United Kingdom (UK) households and businesses appear more sensitive to rising inflation than in the past, emphasizing that the risks of failing to act against persistent inflation outweigh the risks of tightening policy unnecessarily.

Key takeaways:

UK households and businesses are arguably more sensitive to increases in inflation than in previous periods.

In a scenario where energy prices generate stronger second-round inflation effects, Greene said interest rates may need to be raised.

Greene argued there is a benefit to acting sooner on rates, noting that the speed of the policy response can be just as important as its magnitude.

She said she places a relatively high weight on stabilizing prices compared with supporting economic output.

Greene added that the risk of acting against inflation, even if it proves less persistent, is less severe than the risk of failing to act.”