Senior Bank official requires ‘regular as she goes method’ to charges

A senior Bank of England official has called for a ‘cautious, steady as she goes approach’ to cutting interest rates amid inflation pressures.

Megan Greene said it was ‘appropriate to take a gradual approach to removing restrictiveness’ – echoing the Bank’s Governor Andrew Bailey.

Greene, a member of the Bank’s rate-setting Monetary Policy Committee (MPC), also warned that worries over next month’s Budget could be holding back investment and spending. 

Cautious: Megan Greene (pictured ) is a member of the Bank of England’s rate-setting Monetary Policy Committee

The Bank cut interest rates by a quarter of a percentage point to 5 per cent last month after inflation neared its 2 per cent target.

But it has resisted pressure to follow the US Federal Reserve and European Central Bank in going faster. Both have now cut rates by half a percentage point.

This month, rates were left on hold as Bailey said the Bank must be ‘careful not to cut too fast’. The less gung-ho approach has buoyed the pound, which yesterday hit a new two-and-a-half year high versus the dollar at above $1.34 before slipping back.

Greene is one of the MPC’s more hawkish members but supported the 8-1 decision to leave rates at 5 per cent.

Markets expect that rates will be cut by another quarter of a per cent in November and will dip below 4 per cent by the middle of next year. 

But in a speech in Newcastle yesterday, Greene pointed to the risks that inflation could prove more stubborn than hoped.

Underlying inflation in the services sector has proved hard to budge and wage growth ‘remains above what our suite of models can explain’, she said.

It could mean the Bank’s interest rate policy ‘isn’t as restrictive as we had thought’, meaning rates may not have squeezed inflation out of the system.

‘Given this risk, I believe it is appropriate to take a gradual approach to removing restrictiveness,’ Greene said.

Greene said she would wait for data to show inflation risks are diminishing, adding: ‘Until then, I believe a cautious, steady as she goes approach to monetary policy easing is appropriate.’

Asked if worries over tax rises in the Budget were holding back growth, she said: ‘There’s a lot of uncertainty in the UK. Generally, uncertainty causes businesses and households to wait on the sidelines until some of that is cleared up.

‘And we may be seeing some of that.’