BoE’s Greene: Supply Shocks Complicate Monetary Policy
BoE policymaker Megan Greene highlights how persistent supply shocks challenge traditional central bank frameworks, with implications for rate path expectations.
Bank of England policymaker Megan Greene has warned that a world of repeated supply shocks complicates the central bank's ability to set monetary policy, forcing a reassessment of how inflation and growth trade-offs are managed.
Greene, an external member of the BoE's Monetary Policy Committee, argued that supply-side disruptions—from energy price spikes to geopolitical fragmentation—are no longer one-off events but a structural feature of the global economy. This shifts the traditional central bank calculus: instead of looking through temporary supply shocks, policymakers may need to respond more aggressively to prevent second-round effects on inflation expectations. The BoE has already faced this dilemma, with UK inflation remaining sticky above target even as growth slows, a scenario that challenges the standard Phillips curve framework.
For rates markets, Greene's remarks reinforce the view that central banks are operating in a more uncertain environment. The BoE's rate path is already priced with caution, but a structural supply-shock regime implies that the neutral rate (R-star) may be higher than pre-pandemic estimates. This could keep the terminal rate elevated and delay any easing cycle. Traders can track live UK gilt yields and OIS pricing on NowPrice to see how the market adjusts to these evolving policy signals.
Looking ahead, the key question is whether supply shocks prove transitory or permanent. Markets will watch upcoming UK CPI prints, wage data, and the BoE's own projections in the August Monetary Policy Report for clues. If supply constraints persist, the BoE may have to tolerate higher inflation for longer or tighten more than currently expected—a tension that will keep rate volatility elevated.