Megan Greene, a policymaker at the Bank of England, noted that pricing is partly influenced by global factors, and not all market pricing concentrates on the UK. She expressed more concern about the supply side and mentioned that exchange rates have not behaved as theory predicts, with a falling dollar potentially being disinflationary for the UK.
It’s too early to determine where the situation with the dollar’s strength will stabilise. There are currently no signs of upheaval in the labour market, and UK wage growth remains consistently high, with services indicating persistent inflation. Greene is more concerned about services inflation compared to wage growth.
Tariffs And Inflation Expectations
She also mentioned that tariffs pose a disinflationary risk and that rising inflation expectations are worrisome. The neutral rate is now higher than previously and a rate between 3.25% and 3.50% is considered reasonable.
Market pricing anticipates 87 basis points of easing by the end of the year and a 99% probability of a 25 basis point cut at the upcoming Bank of England meeting. The market’s reaction was influenced by the US tariffs announcement and the ensuing global market downturn.
Her remarks paint a picture of a global economy that’s not moving in isolation. What Greene suggests, though she doesn’t spell it out directly, is that markets are often blinkered in their assumptions. We often expect orderly relationships—strong dollar leads to X, weaker pound does Y—but that tidy logic hasn’t held firm lately. Instead, currency moves have had outcomes that deviate—mildly but persistently—from models. Particularly for sterling, where a softer US dollar is signalling effects that counter expectations by putting downward pressure on UK inflation.
Greene’s focus on services inflation underscores something critical. Despite the absence of shocks in jobs data and despite elevated nominal wage growth, the actual concern lies in the price stickiness in core services. From our side, that’s telling. We should be less distracted by the noise in headline wage statistics and more attuned to the slow grind of price changes in sectors like hospitality, education, and healthcare. These are areas where changes are slow to appear—but once in motion, they rarely reverse quickly.
The note on tariffs being a disinflationary risk feels almost contradictory at first glance, considering their usual upward pressure on prices. However, in this context, she’s likely thinking ahead—perhaps referencing the indirect consequences of slower imported demand or long-term shifts in trade flows. We should be watching for signs that overseas price weakness is beginning to translate into UK import prices, though that signal has yet to fully appear. Be patient but alert.
Market Reactions And Rate Cuts
That said, the rising inflation expectations complicate the picture. The bond market, usually ahead of the curve, is showing some discomfort—perhaps doubting the underlying assumption that price pressures will ease considerably in the near term. Add to that Greene’s comment on the neutral rate shifting upward, and we’ve got a scenario where rate cuts may appear closer, but their justification is not as compelling as the path of market pricing would suggest.
The front end of the curve is already priced for roughly three cuts within the year, starting imminently. There’s little room for surprise and not much margin for error. Pricing has become loose in parts—overcompressed even. The combination of US-led market declines and tariff responses triggered a quick catalyst, but that volatility might not last unless we see further data confirming the dovish path.
In other words, we may want to scale back expectations that are running ahead of data. If service-driven inflation stays firm and the labour market doesn’t wobble, there is a risk that the Bank won’t act on the current futures pricing. Not all easing assumptions are safe bets. The market has taken the recent data as green lights—but signals from policymakers like Greene suggest amber is a better metaphor.
