MPC hawk Megan Greene softens her stance in latest speech

In the high-stakes monetary policy game, Greene's speech suggests that while the BoE hawks may be ruffling their feathers, they're not yet ready to leave the nest. As hawkish Greene softens her stance, the latest remarks underscore a commitment to a gradual and measured monetary policy easing. However, Greene's shift in tone reveals a more nuanced understanding of the risks facing the UK economy, suggesting that vigilance is crucial in these uncertain times. This stance aligns with the BoE's broader strategy of maintaining credibility in its inflation-fighting mandate. While her comments suggest a slightly increased openness to rate cuts, they do not fundamentally alter the BoE's cautious approach to monetary policy easing. Financial markets will likely interpret Greene's comments as a minor dovish shift but not a significant change in the BoE's overall stance. Investors should prepare for a potentially prolonged period of elevated rates, but remain alert to signs of policy shift.

The softening in Greene's tone will turn some heads and push the odds of a November rate cut up slightly given her emphasis on the strength of the economy. With the UK economy showing signs of weakness from flat month-on-month GDP growth in the past 2 months, as well as a slowdown in growth in September's flash PMIs, the economic landscape is far from rosy. Add to this a gloomy incoming Budget filled with growth-stunting tax hikes, and the economic outlook darkens further. As such, critical GDP data due on Monday looms large. Consensus is for a downward revision for Q2 GDP growth to 0.6% from 0.7%. Therefore, a lower figure could tip the scales, especially if accompanied by cooling services and wage inflation in the coming weeks. Our base case remains that Greene will continue to vote for a hold. But although the American advocates for a slow and steady approach to rate cuts, we see upside potential for her to vote for a cut if incoming macro data comes in weaker than expected.

Megan Greene said something quite interesting, if slightly disconcerting, this morning. "Wage growth has fallen but remains above what our suite of models can explain." How are we able to judge what the Bank of England is thinking if their models aren’t able to pick up what wage growth is doing? Considering it has been a key pressure, it could mean they go for a cut at their next meeting just for safety, purely because the US has. If they do this, we should see sterling moderate from 1.33 where it’s really had a strong rally of late. It’s quite early to suggest anything from these comments, so October data will be key to know what happens in November.

The chances of a November rate cut were already low, and whilst there has been a change in Greene's tone, let's not forget the last vote was 8-1 in favour of a hold. With the upcoming Budget promising to leave the public worse off and the economy weakening, it really is very difficult to predict just what will happen next. All eyes will now be on the next suite of data and Rachel Reeves's words.

Wage pressures won't ease following the recent public sector increase for junior doctors, with nurses now declining a 5% pay rise as well. If the Labour government increase the minimum and living wage next year, this will then present further risks to wage inflation. Businesses are struggling with high running costs, and the last thing they need is to have to implement higher wages, with higher taxes exacerbating the situation further. The simplest answer to relieve this pressure is a rate cut, and for the Bank of England to stop relying on history to dictate the future.