Bank of England Monetary Policy Committee member Megan Greene said Oct. 20 that resilient borrowing left her uncertain whether Bank Rate was restraining demand enough to contain inflation before the central bank's Nov. 5 decision.
In a London speech, Greene cited £23.6 billion in gross mortgage lending and £2.5 billion in monthly consumer credit in August. She said lending for home purchases had declined since the Iran conflict began, but higher credit costs had produced little broader reduction in borrowing.
The figures did not establish that monetary policy was "meaningfully restrictive," Greene said. She argued for responding before higher energy costs become entrenched in pay and pricing decisions.
In September, six committee members voted to hold Bank Rate at 3.75%, while Greene and two others favored an increase to 4%. The committee found that energy costs had not yet materially influenced wage or pricing decisions, but warned that a sustained increase could change that.
Greene also questioned the official pay reading in her assessment of wage pressure. The Office for National Statistics (ONS) reported that private-sector regular pay grew 3.0% year over year in the three months through August. Greene said other measures suggest stronger underlying growth, while forward-looking indicators point to a rate closer to 3.5% than 3% over the next year.
Greene estimates that pay growth near 3% would be consistent with the Bank's 2% inflation target. In her assessment, workers seeking to protect their purchasing power and firms seeking to preserve margins could keep an energy shock feeding into inflation. She acknowledged that an unnecessary rate increase would weigh on economic activity.
She also cited a pattern of wage forecasts falling short of actual gains since the pandemic. Greene said many 2027 pay agreements will be reached from January through April, making it risky to wait for those settlements before deciding whether to act.
Consumer Prices Index inflation was 3.1% in the year through August. The ONS is scheduled to release September inflation figures Oct. 21, ahead of the Bank's next rate decision on Nov. 5.
