Greene urges rate rises to contain second-round inflation risks
Bank of England (BoE) policymaker Megan Greene advocated raising rates to counter second-round inflation risks. Speaking at the London School of Economics on October 20, 2026, she argued that labour market slack offers less protection than assumed.
The wage slowdown loses momentum
Private sector regular average weekly earnings (AWE) grew 3.0 percent in August, against September median payroll pay growth of 4.4 percent.
August mean payroll growth was 5.0 percent, leaving a 2 percentage point gap against AWE.
Greene attributed the divergence to industry composition, within-industry pay growth and bonuses.
Adjusting for composition and bonuses put growth at 3.4 percent for AWE and 4.5 percent for payroll data, both above her target-consistent estimate near 3.0 percent.
The Decision Maker Panel survey put year-ahead wage growth at 3.4 percent; Indeed advertised wages grew 4.0 percent in August.
Greene sees pay growth stabilising nearer 3.5 than 3.0 percent.
Agents report 2027 settlements similar to, or slightly below, 2026.
Slack offers less protection
Unemployment fell from 5.2 percent in the three months to January to 4.7 percent in August, while vacancies showed signs of stabilising.
Wholesale gas prices were near triple their early-year level and oil prices just under double.
Firms' year-ahead price growth expectations reached 3.7 percent, versus 3.4 percent before the Iran conflict.
Household short- and longer-term inflation expectations reached 4.5 and 4.3 percent in September.
Greene warned that most 2027 pay settlements will be agreed between January and April, when the BoE forecasts inflation above 4.0 percent.
Waiting carries its own risk
Greene argues that waiting for February's pay survey risks acting too late because monetary policy works with lags.
Staff simulations favour tightening against strong second-round effects and reversing if necessary over the opposite error.
This is her case for pre-emptive rate rises, not a committee decision.