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Investing.com -- Bank of England policymaker Megan Greene indicated she continues to support keeping interest rates unchanged, despite new data showing UK unemployment has risen to its highest level since the pandemic.
Speaking at a UBS conference in London on Tuesday, Greene suggested the labor market may be past its worst point, while warning that companies are forecasting significant wage increases for the coming year.
Her comments came hours after official figures revealed the jobless rate climbed to 5% in the three months through September, exceeding economists’ forecast of 4.9% and reaching the highest level since early 2021. In response, traders increased bets on BOE rate cuts, with markets now pricing in more than an 80% probability of a December reduction.
"Unemployment does have a five handle on it now, for the first time in a really long time. And that’s not great," Greene acknowledged.
Despite this concern, Greene suggested businesses have now adapted to April’s substantial increase in payroll taxes and the minimum wage, which was a key element of Chancellor Rachel Reeves’ first budget.
"If you look at some of the higher frequency data, it suggests that maybe the adjustment in the labor market is mostly behind us now," she said. "It’s possible that the worst is behind us, but it’s certainly something I’m looking at."
Greene noted that preliminary results from the BOE’s upcoming survey of firms indicate they expect "pay settlements might be three and a half percent next year, which is higher than is consistent with us hitting a 2% inflation target."
She pointed out that household inflation expectations have been rising and "remain at the very top of the bands of what we can explain," adding that "there could be some kind of persistence baked into the economy."
Wage growth is "way too high, particularly given that growth is pretty weak," Greene stated.
As one of the more hawkish members of the nine-person Monetary Policy Committee, Greene voted with the majority to maintain rates last week, while four other officials favored another quarter-point cut.
Greene described the current policy stance as not "meaningfully restrictive" and suggested high savings rates might result from the "scarring" effect of past economic crises, with households setting aside more money "for a rainy day." In such a case, she said, "it’s not obvious that a central bank should actually have a more accommodative stance to address it."
Regarding the neutral rate — where monetary policy neither restricts nor stimulates economic activity — Greene indicated that market pricing of 3.25% to 3.5% seemed "pretty reasonable."
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