BoE's Greene (Hawkish) says UK activity was already pretty weak before the Iran war, the war impact is inflationary
- Not convinced the impact of negative supply shocks had worn off.
- Growth will be lower and inflation will be higher.
- Labour market slack and demand is much weaker.
- There are downside risks to demand.
- Not immune to weaker demand side.
- Will not have definitive evidence of second-round effects for a while and it could take months.
- MPC cannot just look through negative supply shocks, view needs to be more nuanced.
Context
The BoE's Greene presents a hawkish stance, indicating that prior UK economic weakness has been exacerbated by the Iran war, leading to increased inflationary pressures. His comments suggest a more cautious approach from the MPC regarding upcoming policy decisions, as they navigate the complex interplay of lower growth and higher inflation while being mindful of potential downside risks to demand. Traders should watch the GBP and fixed-income markets closely, as this nuanced perspective may influence the monetary policy outlook more than previously anticipated.
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