BOE's Greene Favors Proactive Tightening Against Wage Growth Risks

Monetary policy ought to be used to push back against the risk of wage increases becoming embedded at higher rates, BOE's Greene told the Financial Times.

• It is fitting to act preemptively in tightening monetary policy to offset the danger that wage growth might settle at elevated levels, Greene said.

This week brought further remarks from other BOE policymakers.

Governor Bailey emphasized the potential upsides of investing in artificial intelligence.

• Economic activity in the UK has proven more resilient than expected, partly thanks to AI investment, especially in business services, Bailey noted.

• Bailey observed growing signs of the initial phase of a positive supply shock from AI and the associated investment.

According to the Guardian, Deputy Governor Lombardelli left the door open for a December rate increase.

• A further 25bps rate hike in December is plausible, with every meeting considered live, though the decision depends on developments in the Iran conflict, Lombardelli said.

Breeden discussed how businesses are responding to elevated costs.

• Firms have become very adept at adjusting to cost shocks, Breeden noted.

Lombardelli also cautioned regarding persistent inflation and hidden issues in the labour market.

• When setting monetary policy, we will continue to look beyond headline figures: whether hiring is recovering, whether workers can transition to available jobs, and whether labour market weakness is genuinely reducing wage and inflation pressures. That evidence will guide the assessment of how much further monetary policy must go to return inflation sustainably to the 2% target.

• Lombardelli argues that conditions for sustained inflationary dynamics over the medium term are crystallizing.

• The longer energy costs remain high, the more pressure businesses will face to restore their margins.

• The energy shock has become more persistent.

• There is a greater likelihood of second-round effects.

• The balance of inflation risks is tilted to the upside.

• The labour market is operating in low gear; the UK has a low-hire, low-fire labour market that creates its own difficulties; it may be necessary to raise rates further in the near term, Lombardelli warned.

Lombardelli also commented on economic resilience and slack.

• Monetary policy has been less restrictive than assumed because of economic resilience, according to Lombardelli.

• It is hard to determine if the UK economy is more resilient to price shocks or if it is approaching its absorption limit.

• He thinks there may be less spare capacity in the UK economy versus the BOE's central view, at 0–1% compared to 1%.

Analysis of the statements:

Greene's stance is hawkish. She aims to anticipate the danger that wage growth remains fixed at levels that sustain elevated inflation. The key word is "proactively," indicating a willingness to tighten before persistence fully sets in. Lombardelli's remarks point in a similar direction. A sluggish hiring environment does not necessarily mean that wage pressures are abating, especially when workers cannot easily shift into available jobs. Moreover, if the economy possesses less slack than the BOE estimates, there is limited scope for demand growth without adding to inflation.

For traders, these remarks keep the possibility of another rate hike firmly in play, with December a realistic option rather than a commitment. Bailey's AI comments offer a potentially more favourable supply outlook over the longer term, but stronger investment also helps explain why economic activity has remained robust. The key indicator going forward is whether wage growth and business pricing pressures actually moderate. A prolonged decrease in energy costs would be beneficial, but if companies keep passing on earlier cost increases and wages prove sticky, the case for additional tightening stays intact.

The GBPUSD pair is trading close to its intraday low, oscillating around a swing area target at 1.32729.