LONDON (Reuters) -British government budget measures to cut household energy bills by 150 pounds ($199) a year may help lower the public’s inflation expectations, but it is too soon to draw a clear view, Bank of England policymaker Megan Greene said on Thursday.
Greene, speaking at a conference in London hosted by Irish financial services company Goodbody, said bank staff were assessing the inflation implications of finance minister Rachel Reeves’ second annual budget which was delivered on Wednesday.
Measures such as the cut to energy bills would typically be ignored by central bankers as they only have a one-off impact on the level of prices, rather than placing lasting downward pressure on inflation.
But given the importance of energy bills for households’ perceptions of longer-term inflation, there was a possibility that it could weigh on households’ price expectations and push down on inflation on a more lasting basis, she said.
“The budget should have some inflationary implications, though as I said it’s kind of a one-off so there’s an argument for looking through it. But, you know, I guess I’d be marginally less concerned about it, but really marginally,” she said.
Greene voted against the BoE’s last quarter-point rate cut in August and earlier this month said she did not think current interest rates of 4% were “meaningfully restrictive” and that she remained concerned about future wage growth.
BoE surveys of businesses’ pay settlements suggested that future pay growth would be around 3.5%, she said, higher than would normally be justified by the strength of the economy and increasing the risk of above-target inflation.
British inflation of 3.6% is the highest of major advanced economies and the BoE does not expect it to return to its 2% target until mid-2027.
Government forecasters estimate Reeves’ budget measures, which include 26 billion pounds of tax rises, will reduce inflation by 0.4 percentage points in the next financial year but add 0.1 percentage points to price growth in the two years after.
Financial markets price in a more than 90% chance of a quarter-point BoE rate cut on December 18 after the Monetary Policy Committee’s next meeting and then one or two further rate cuts in 2026, according to LSEG data on Thursday.
($1 = 0.7555 pounds)
(Reporting by David Milliken, Editing by Sam Tabahriti and Andrew Heavens)
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