Bank of England policymaker Megan Greene has warned that faster US interest rate cuts could paradoxically slow the UK's own rate reductions and fuel British inflation. Her comments come as US President Donald Trump pressures the Federal Reserve to accelerate its rate-cutting programme.
Speaking at the Resolution Foundation think tank, Greene argued there is a "strong case for the Bank of England doing exactly the opposite" of following the Fed's lead. She explained that if the Fed cuts rates more aggressively than the Bank of England this year, it could boost US demand for UK exports, creating upward pressure on UK inflation.
Trump pressure and Fed succession
Trump has repeatedly called for the Federal Reserve to cut interest rates more rapidly. The future path of US rates may depend on the successor to current Fed chairman Jerome Powell, whose term ends in May. Trump intends to nominate someone willing to accelerate rate cuts.
Greene highlighted that markets are currently pricing in a large risk of a looser Fed policy stance in 2026. "If this were to materialise, then it would – all else equal – push up on UK inflation," she said. "This would, in my view, give even greater cause for concern about a risk of UK inflation persistence over that of weaker demand, warranting a slower withdrawal of monetary policy restriction in the UK."
Inflation concerns persist
The Bank of England policymaker said she is less worried about disinflation slowing than she was a few months ago. This shift is largely due to Chancellor Rachel Reeves' autumn budget, which includes a £150 cut to average household energy bills from April.
However, Greene remains vigilant about inflation risks. She is "watching household and business inflation expectations" closely. "Even more concerning, in my view, are the forward indicators for wage growth," she said, noting that the decline in private sector wage growth may have reached its limit.
Greene is one of nine members on the Bank of England's Monetary Policy Committee, which sets UK interest rates. Her caution reflects the challenge facing small, open economies like the UK, where price dynamics abroad are likely to influence prices despite the "conventional wisdom that other central banks must 'follow the Fed'".
Note: This article was created with Artificial Intelligence (AI).
