NextFin News - Bank of England policymaker Megan Greene warned on Monday that the era of central banks "looking through" supply-side shocks is effectively over, signaling a structural shift in how interest rates must respond to a more volatile global economy. Speaking in London, Greene argued that the traditional monetary policy playbook—which suggests officials should ignore temporary price spikes caused by supply disruptions—is increasingly ill-suited for a world defined by frequent geopolitical friction, labor shortages, and the inflationary costs of the green energy transition.
The Bank of England (BoE) currently maintains the Bank Rate at 3.75%, following a hold decision on April 30 where the Monetary Policy Committee (MPC) voted 8–1 to keep borrowing costs steady. Greene, who joined the MPC in July 2023 after serving as global chief economist at Kroll, has established herself as one of the committee’s more hawkish voices. Her recent voting record reflects a deep-seated concern regarding inflation persistence; while she supported a rate cut in May 2025, she has since pivoted to a more restrictive stance, frequently citing the risk that wage growth and services inflation remain "sticky" even as headline figures fluctuate.
Greene’s thesis rests on the observation that supply shocks are no longer rare, "one-off" events but are becoming a permanent feature of the macroeconomic landscape. According to Greene, when supply shocks become frequent or overlapping, they can de-anchor inflation expectations and bleed into wage-setting behavior. This creates a "second-round effect" that monetary policy cannot afford to ignore. Her position challenges the long-standing consensus that central banks should only react to demand-side pressures, suggesting instead that the BoE may need to keep rates higher for longer to counteract the inflationary bias of a fractured global supply chain.
This perspective is not yet the universal consensus within the MPC or the broader market. While Greene emphasizes the risks of doing too little, other members of the committee have expressed concern that maintaining high rates could unnecessarily stifle a UK economy that has seen sluggish productivity growth. Market pricing currently reflects a cautious outlook, with some analysts predicting the base rate could remain at 3.75% for the remainder of 2026, though Greene’s rhetoric suggests she would be quicker to support a hike than a cut if supply-driven price pressures intensify.
The external environment provides a stark backdrop to this policy debate. Global commodity markets remain elevated, with Brent crude oil currently trading at 103.83 USD/barrel, a level that continues to exert upward pressure on energy costs and transport logistics. Simultaneously, the flight to safety and persistent inflation concerns have pushed spot gold to 4670.39 USD/oz. These prices underscore the very supply-side volatility Greene describes, as geopolitical tensions and resource scarcity keep the "cost-push" element of inflation firmly in the spotlight.
Greene’s analysis also highlighted the specific challenges of the UK labor market. She noted that a rise in long-term sickness and a decline in labor participation have created a "wage mark-up" effect, where workers demand higher pay to offset the rising cost of living, further complicating the BoE’s 2% inflation target. For Greene, the risk of "inflation persistence" outweighs the risk of "weaker demand," a hierarchy of concerns that places her at the vanguard of a more aggressive breed of central banking. Whether her colleagues fully embrace this "supply-first" framework will likely determine the trajectory of UK interest rates as the year progresses.
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