BOE's Greene Flags Rising UK Inflation Risks

Context

Bank of England Monetary Policy Committee member Megan Greene said on March 25, 2026 that she was “not close” to voting for a rate hike at this month’s meeting but warned that inflation persistence risks have increased "perhaps significantly." Greene made the remarks at a Jefferies event, drawing attention because she is widely regarded as the MPC’s most hawkish voice, having voted against policy rate cuts in both August and December 2025 (InvestingLive, Mar 25, 2026). The immediate catalyst for her caution was a Citi survey showing one-year inflation expectations surged to 5.4% in March from 3.3% in February — the largest monthly increase in more than two decades (InvestingLive, Mar 25, 2026). That data point has sharpened markets’ focus on whether transitory inflation narratives still hold in the UK and whether household inflation sensitivity has structurally risen after recent shocks.

Greene also drew attention to the labour market dynamics that complicate the policy calculus: while she flagged rising inflation expectations, she acknowledged the labour market today is materially weaker than during the 2022 inflation surge, reducing the automaticity of a wage-price spiral. Her comments therefore combined a hawkish inflation risk signal with an explicit caveat tied to employment and wage momentum. For policymakers and market participants, this duality matters: it implies the MPC’s reaction function may become more conditional on incoming labour and wage data rather than headline CPI alone (InvestingLive, Mar 25, 2026). Investors should note that a single MPC member’s vocal stance can still shift market pricing around expectations for future Bank Rate moves, particularly when that member has a track record of dissent.

Greene’s public stance sits within a committee that has recently debated easing and tightening impulses; her past votes against cuts in August and December 2025 provide empirical evidence of consistent hawkishness relative to her colleagues. That history frames her March 25 comments not as isolated rhetoric but as a continuation of a more restrictive monetary bias within parts of the MPC. Market participants will weigh her statements alongside official metrics — for example, the Citi survey jump — to assess the persistence of inflation expectations and the potential for an upward re-pricing of BoE path expectations. For a detailed read on how such committee dynamics have affected gilt markets historically, see our topic.

Data Deep Dive

The most salient concrete datapoint Greene referenced was the Citi survey outcome reporting a rise in one-year inflation expectations to 5.4% in March from 3.3% in February — a 2.1 percentage-point monthly swing (InvestingLive, Mar 25, 2026). That magnitude is notable: investinglive reported it as the largest monthly jump in over 20 years, implying a structurally unusual recalibration of short-term inflation psychology among households and consumers. Short-term expectations like these can feed through to pricing behaviour for firms and wage negotiations if they persist; central banks monitor them because household expectations influence consumption, saving, and nominal contract behaviour. Importantly, these are expectations surveys rather than realized CPI — but expectations can become self-fulfilling if businesses and labour groups act on them.

Beyond the Citi survey, Greene’s comment that the labour market is “weaker than during the 2022 inflation surge” is an essential qualifier because historical episodes show differing pass-through from expectations to wages depending on labour market tightness. In 2022, UK wage growth was stronger and unemployment lower, conditions that supported labour-led inflation transmission. With the labour market now softer — an observable shift highlighted by Greene — the transmission channel from elevated expectations to realized inflation may be impeded. Still, Greene warned that households and firms could be faster to adjust prices and wages in response to inflation shocks today, which raises the possibility of a quicker-than-expected catch-up if a fresh demand or cost shock occurs.

Finally, there is a cross-checking imperative for investors: markets price future Bank Rate probabilities dynamically. Short-term swap-implied probabilities and gilt yields will react to both the Citi expectations jump and Greene’s comments. While we are not making investment recommendations, the combination of a high-profile hawkish voice and a large survey-driven shift in expectations increases the odds of greater volatility in short-end gilts and Sterling FX in the near term. For ongoing monitoring of how central-bank rhetoric and survey surprises map to asset prices, see our topic.

Sector Implications

A sustained uptick in short-term inflation expectations to above 5% would have differentiated effects across sectors. Consumer staples and utilities — sectors with inelastic demand — typically pass through cost increases more readily and could see margin pressure if input costs rise and prices lag. Conversely, discretionary sectors may see demand compression if households re-anchor to higher inflation expectations and reduce real expenditure. Banks and financials can experience dual effects: nominal loan growth may pick up with higher inflation, but real credit risk can worsen if wage growth fails to keep pace with prices.

Fixed-income markets are particularly sensitive to shifts in inflation psychology. Short-term gilt yields typically react more to inflation expectations and policy-rate prospects, so the Citi survey spike can lead to repricing in the front end of the curve. Corporate credit spreads could widen if higher inflation expectations translate into concerns about future policy tightening or real economic contraction. Internationally, a sterling depreciation could occur if markets infer a higher-for-longer UK policy trajectory relative to peers; this would feed into imported inflation dynamics, further complicating the BoE’s task.

Policymakers in other advanced economies will watch the UK experience because cross-border pass-through and relative policy differentials matter for capital flows and exchange rates. If the BoE signals a less-dovish stance than, say, the ECB or the Federal Reserve in coming months, that divergence could alter portfolio allocations and carry trades. Sector-level outcomes will therefore depend on both domestic macro fundamentals and relative policy moves across advanced economies.

Risk Assessment

Key downside risks to the narrative that inflation expectations necessarily translate into persistent inflation include the softness in the labour market and the potential for demand erosion from tighter financial conditions. Greene herself emphasized that the labour market is weaker than in 2022, which historically blunts wage dynamics and reduces the probability of an entrenched wage-price spiral (InvestingLive, Mar 25, 2026). Additionally, if higher nominal rates follow, household spending could moderate, suppressing the demand channel for inflation. These interactions create a non-linear policy risk where central banks must balance inflation dynamics against growth and employment objectives.

Another risk is measurement noise in expectations surveys. The Citi survey spike is meaningful for signalling shifts in sentiment, but survey-based expectations can be volatile and driven by short-lived information shocks. Policymakers and markets must triangulate such surveys with realized inflation, wage growth figures, and labour market indicators to avoid overreacting. There is also model risk: if macro models understate the speed at which expectation changes feed into prices because of new channels (e.g., faster information transmission via digital pricing), central banks could be caught late.

Finally, geopolitical or commodity shocks remain wildcards. A renewed commodity price surge or global supply disruption would amplify inflationary pressure independent of domestic demand, increasing the likelihood of MPC tightening. Conversely, a sharper-than-expected slowdown in the UK or global economy could force a repricing toward easing. These scenario risks suggest that while Greene’s warning is credible, it must be assessed within a matrix of alternative paths.

Fazen Capital Perspective

Our contrarian read is that the Citi survey spike and Greene’s warning represent an early-warning signal rather than definitive evidence of a sustained inflation re-acceleration. The combination of weaker labour market metrics relative to 2022 and still-moderating wage growth constrains the pass-through from expectations to realized inflation in our view. That said, we do not dismiss the risk: higher inflation expectations materially increase the tail risk of a policy error if the BoE underestimates household and firm re-pricing speed. Therefore, the operational implication for risk managers is to treat the current environment as one in which uncertainty about the inflation path is elevated and asymmetric.

In practice, this means monitoring high-frequency indicators — weekly price scans, pay negotiations in large sectors, and short-term survey flows — together with realised CPI and wage prints. We also believe that market pricing will be sensitive to language nuance from the MPC in coming weeks; a single hawkish dissenter with Greene’s voting history can shift expectations if survey signals persist. For further institutional analysis on central bank communications and scenario frameworks, consult our topic.

Outlook

Near term, expect tighter correlation between headline survey surprises and front-end gilt yields. If short-term inflation expectations remain elevated through April and into May, the market will likely re-evaluate the probability of BoE tightening relative to current pricing. However, if subsequent labour and wage data continue to show softness, the MPC’s room for pre-emptive rate hikes will be constrained, preserving the possibility of divergent outcomes.

Over the medium term, the path of inflation will hinge on whether expectation shifts become embedded in wage-setting and pricing decisions. Historical precedents indicate that when households and firms update expectations materially and persistently, policy must respond to avoid second-round effects. Policymakers will therefore be balancing uncertain signals: a large short-term expectations spike against a weaker labour market than the 2022 episode. The balance of evidence over the next three-to-six months will determine whether Greene’s warning translates into a durable shift in BoE policy path.

Bottom Line

MPC member Megan Greene’s March 25, 2026 comments — highlighted by a Citi survey jump to 5.4% one-year inflation expectations — raise the probability of greater volatility in short-term UK inflation and gilt markets, but the weaker labour market tempers the likelihood of an automatic wage-price spiral. Monitor incoming wage and labour data closely as the decisive inputs for whether headline expectation shocks become persistent.

Disclaimer: This article is for informational purposes only and does not constitute investment advice.