A senior figure from the Bank of England has expressed the need for a careful approach to reducing interest rates, advocating for a “steady-as-she-goes” strategy. This comes after the first cut in borrowing costs in four years, as highlighted by Megan Greene, an American economist and external member of the central bank’s monetary policy committee.

Greene, who has not yet participated in any votes for rate cuts during her tenure, was among four members who opposed the decision to maintain the base rate at 5.25% in August, ultimately outvoted by five members including the Bank’s Governor, Andrew Bailey.

During a speech at the Newcastle Chamber of Commerce, Greene underscored concerns regarding persistently high inflation due to strong wage growth and corporate price increases. She emphasized that rather than expecting a significant drop in inflation as global energy prices stabilize, a careful ease in monetary policy is warranted.

“I believe a cautious, steady-as-she-goes approach to monetary policy easing is appropriate,” Greene stated, noting that while services inflation is trending downward, this decrease has been largely influenced by reductions in food price inflation rather than domestic factors.

Furthermore, Greene cautioned that the neutral interest rate in the UK—which signifies a balanced monetary policy—might be higher than initially estimated. She pointed out that while wage growth has diminished, it remains above projections from existing models and suggested that the risks to economic activity could indicate a higher long-run neutral rate.

This week, Governor Bailey remarked on the improbability of returning to the historically low interest rates seen prior to the 2008 financial crisis, suggesting that significant economic shocks would be required. “To go back down to those levels, you’d have to have very big shocks,” he explained.

Current financial market forecasts anticipate a single additional rate cut from the Bank this year in November, potentially lowering borrowing rates to 4.75%. Meanwhile, the UK’s pace of monetary easing has lagged behind that of the United States and the eurozone, where authorities are taking more aggressive measures to bolster economic growth and the job market.

Greene further indicated that household spending in the UK remains below pre-pandemic levels and is trailing behind that of the United States and other G7 nations. The Bank anticipates an increase in consumer spending this year as inflation declines, which might contribute to sustained inflation levels above the Bank’s 2% target.