Case for hiking rates growing says Bank of England policymaker

Higher interest rates may be necessary to avoid a sustained period of above-target inflation, according to one of the Bank of England’s interest rate setters during a recent event at the University of Derby.

Held at Derby International Business School earlier this month, the event saw Megan Greene – a member of the Monetary Policy Committee (MPC) – discuss the inflationary risks linked to rising global energy prices and conflict in Iran.

Titled “Here we go again? Assessing the inflation risks of the recent energy shock”, the day brought together students, academics, business leaders and regional stakeholders for a speech, Q&A session and networking reception.

Speaking at the University of Derby’s Cavendish Building, Megan discussed how energy price shocks can affect price and wage-setting across the economy, how the current situation compares with previous energy crises and the potential implications for inflation and monetary policy in the UK.

The discussion comes amid renewed concern over global energy markets, with rising wholesale costs expected to increase pressure on household bills in the coming months.

Megan also outlined the channels through which higher energy costs can feed into broader inflationary pressures and considered the wider global consequences of instability in Iran.

She said: “In my view, the risk of acting, even if inflation proves to be less persistent, is less severe than the risk of failing to act. Inflation has exceeded our target in seven of the past 10 years.

“Should inflation remain above target now, there is a risk that households and firms come to see this as a ‘new normal’ and adjust their behaviour accordingly.

“This would ultimately require an even bigger monetary policy response to bring inflation sustainably to target. The old adage “a stitch in time saves nine” applies to monetary policy.”

Alexandra Charles, interim director of Derby International Business School, said: “We were delighted to welcome Megan Greene to the university for what was an incredibly timely and insightful discussion.

“The event provided a valuable opportunity for our students, staff and guests to hear directly from one of the UK’s leading economic policymakers on issues that are having a real impact globally and nationally.

“It was also fantastic to host the event at the Cavendish Building, which was designed to support collaboration, knowledge exchange and meaningful discussion between academia, industry and policymakers.”