(Bloomberg) -- Bank of England rate-setter Megan Greene said Britain’s lagging recovery in consumer spending may be boosted as interest rate cuts reduce the impulse for households to hoard savings.
Greene said she favored a “cautious, gradual approach” to easing policy because of uncertainty over how British consumers will react to falling borrowing costs after interest rate hikes lured many into saving more. “A rate-cutting cycle should reduce the incentives for households to delay consumption and save more,” she said in an opinion piece for the Financial Times published on Monday.
The BOE Monetary Policy Committee member said that lower borrowing costs could release pent-up demand in the economy and boost inflation, although she also noted the risk of weaker consumption as consumers continue to refinance mortgages at higher rates. Greene highlighted that real consumption in the UK was just 1.5% above pre-Covid levels, compared with 13% in the US.
Greene is one of the more hawkish policymakers on the MPC, and opposed August’s quarter-point interest rate cut, the BOE’s first since the pandemic. She gave little indication of whether she will back a second rate cut next month, as traders currently expect.
The remarks suggest Greene is still wary over rushing into a quicker rate-cutting cycle. It contrasts to recent comments from Governor Andrew Bailey, who suggested that the central bank could be a “bit more aggressive” if the good news on inflation continued.
©2024 Bloomberg L.P.