Bank of England rate-setter Megan Greene comments on the ongoing disinflationary process. She attributes the current inflation increase to one-off factors and expects it to decrease to target in the medium term.

Greene emphasises that while the expectation is to look through current inflation levels, there are risks involved. One concern is that consumers might reduce spending even if interest rates decrease.

Trade Fragmentation

Trade fragmentation is anticipated to have a disinflationary effect on the UK. Greene hints at potential policy divergence in the future.

Currently, the market forecasts a 38 basis points reduction in Bank of England easing by the end of the year.

Greene’s remarks underscore the present situation, where short bursts of inflation are not being taken as signs of a sustained upward trend. Instead, we are seeing central bank officials focusing on broader forces that are likely to push inflation back towards target levels over time. These “one-off” factors—temporary influences such as volatile energy prices or seasonal effects—are being acknowledged without prompting an aggressive policy response. It’s a measured approach, suggesting that rate setters are trying to avoid overcorrecting for near-term fluctuations.

From our perspective, this implies a careful balancing act. If inflation is seen as temporary, expectations map towards a steady course rather than abrupt cuts or hikes. But Greene flags a less discussed concern: that households may behave irregularly, even when the cost of borrowing shifts favourably. The idea here is that consumers do not always act in lockstep with monetary adjustments. Confidence, sentiment, or other shocks—such as job market worries—could make people hold back on spending despite more favourable borrowing costs.

Global Trade and Policy Divergence

We should also keep in mind that Greene is pointing towards a broader structural shift. Fragmented global trade is now being considered a suppressive force on price pressures. For traders like us, who often frame decisions around interest rate probabilities, the implications are clearer now: over time, lower inflation bolstered by trade restructuring may keep the path modest, even downward, for rates.

When Greene alludes to policy divergence, she’s introducing the idea that not all central banks will act in unison. This matters greatly. Divergence means rate paths among key economies might start to untangle. It would not be wise to expect the Bank of England to mirror moves from the Fed or the ECB in exact timing or scale. For positioning, this gives us more freedom—but also more complexity.

At the moment, official futures markets reflect a modest degree of easing: just under 40 basis points priced in by year-end. That number doesn’t suggest any rush. It aligns with the view of a central bank that is alert but not alarmed. For us, that means sensitivity to data remains paramount. Labour metrics and core inflation indicators, in particular, are likely to carry more weight in short-term pricing models than geopolitical commentary or wage anecdotes.

We should be watching closely for any shifts in forward guidance language from policy officials, as this can provide hints at timing or sequencing. For now, Greene’s stance means conditional patience and close monitoring rather than speculative optimism or panic positioning. For those of us managing exposure across durations, a flatter rate curve may emerge if the policy stays steady amid fading price growth. Expect no sharp turns, but instead a gradual alignment with anchored targets. The route, not the velocity, is what matters from here.

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