Key facts
- UK employers are expected to raise pay by around 3.5% next year, according to BoE policymaker Megan Greene.
- Greene believes this pay growth is higher than what is needed to achieve the 2% inflation target.
- Greene voted against the BoE's recent decision to cut interest rates to 3.75% from 4%.
- Preliminary business surveys suggest 2026 wage growth of 3.5%, which Greene finds concerning.
- Greene suggested the BoE should not automatically follow Federal Reserve rate cuts.
Bank of England policymaker Megan Greene stated that British employers are likely to increase pay by approximately 3.5% next year, a figure she finds concerning as it exceeds what is considered necessary to bring inflation back to the central bank's 2% target.
Greene expressed her worries at a conference in Cape Town, noting that "early indications are that pay settlements should grow by around 3.5%. So there's not a whole lot of wage disinflation happening there, and that worries me."
She had previously voted for a quarter-point interest rate hike to 4% in June, July, and September. Financial markets anticipate a majority of the Monetary Policy Committee will support a rate increase to 4% at their upcoming meeting in early November. However, a separate report from January indicated that the Monetary Policy Committee had voted 5-4 to cut the key interest rate to 3.75% from 4% the previous month, with Greene opposing this move.
Greene also commented on the potential impact of Federal Reserve interest rate decisions on the UK, suggesting that the BoE should not automatically follow the U.S. central bank if it cuts rates aggressively. Analysis by Greene and her colleagues indicates that a surprise loosening of Fed policy would likely put upward pressure on British inflation.