BOE policymaker Megan Greene notes that inflation persistence indicators remain elevated. Medium-term inflation expectations are showing a slight increase, which is a concern.

The Bank of England recently cut rates, but differing views among central bank officials indicate ongoing internal debates. Despite some positive movement in wage and inflation measures, the overall levels are still considered too high by Greene.

Caution Within The Bank

Greene’s remarks suggest a degree of caution within the Bank, hinting that premature optimism about the inflation outlook may be misplaced. The upward drift in medium-term expectations underscores the challenge faced by policymakers: while some short-term figures appear to be improving, the broader picture still reflects price pressure that is too sticky for comfort. Markets had previously leaned into the idea of a more sustained easing cycle following the recent rate cut, but we ought to be mindful that a full-blown pivot could take longer to materialise.

The divergence among committee members reflects exactly what we’ve expected — a split between those who focus on current data showing signs of relief, and those like Greene, who keep one eye firmly on underlying measures that move more slowly. That divergence matters because it feeds into the uncertainty about timing and scale of future rate moves. For our part, we should give weight to the more conservative assessments, particularly when expectations begin influencing real-world behaviour, which can entrench price dynamics further.

Interestingly, although some measures such as wage growth have shifted marginally in a more favourable direction, they haven’t done so quickly or cleanly. For derivatives traders, an asymmetric approach is warranted. One-sided bets on aggressive easing could easily come undone if near-term inflation prints remain hot or expectations continue drifting up. Spreads centred on gradual cuts, or positioned for policy remaining steady longer than priced, may provide a better balance of risk versus reward.

Growing Divergence On The Committee

Volatility pricing — especially tied to near-term policy meetings — may now start to reflect the growing divergence on the committee. That increases the value of optionality. We can take advantage of wider pricing bands, using well-timed structures that benefit from overreactions to dovish headlines, while hedging against sharp repricing on the hawkish side.

Market participants should not only follow headline metrics but also dissect core indicators more closely tied to decision-making. Greene’s concern over embedded inflation expectations is less about a single data point and more about momentum. We must respect that flow — it moves slowly and tends not to reverse until policy decisively tightens or demand visibly weakens.

In short, we are not yet in the clear. Treat every assumption of a well-defined easing path with suspicion. Make use of the uncertainty. Pricing in flexibility at this stage may be the most prudent way forward.

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