(Alliance News) - UK "inflation persistence" has ebbed over the past year or so, but monetary policy may need to be "more restrictive" for longer in light of some labour market developments, a Bank of England policymaker said Thursday.
Megan Greene, who joined the rate-setting Monetary Policy Committee last July, said she has noticed that "inflation persistence has waned" since her arrival.
"This is no mere coincidence - it has faded in part because of our restrictive stance of policy," Greene said.
"I think there remains more uncertainty about how much inflation persistence indeed persists than there is about how our monetary policy stance is weighing on growth. In considering for how long we must retain our restrictive stance before policy should be eased, I think the burden of proof therefore needs to lie in inflation persistence continuing to wane."
Greene spoke at an event which looked at the "puzzles" in the labour market, discussing how unemployment has remained low despite tepid output recently, and why red-hot wage growth "remains unexplained".
Greene suggested firms may be "labour hoarding", hanging on to employees instead of adjusting "employment in line with short-term fluctuations in demand".
"On the one hand, if excess labour hoarding persists, this could mean employment and wage growth remain resilient despite our restrictive policy stance and inflation takes longer to converge to target," Greene said.
The MPC member continued: "This would mean that monetary policy would need to be more restrictive for a longer period of time to impact labour market slack and wages and ensure that overall inflation converges to target."
On Tuesday, the Bank of England's top economist has boosted hopes of lower borrowing costs after saying it is "not unreasonable" to expect the bank to consider cutting interest rates over the summer.
Huw Pill, the BoE's chief economist, told an online event organised by the accountancy body ICAEW that the bank could consider cutting rates if inflation continues to ease off.
Pill said: "I think it's not unreasonable to believe that through the summer we will begin to see enough confidence in the decline in persistence that bank rate will come into consideration."
BoE Governor Andrew Bailey said last week that a rate cut in June could not be "ruled out", although he stressed it was not a "fait accompli".
His comments came as the bank held rates at 5.25%, keeping them at the highest level since 2008, but were widely seen as strengthening the case for a cut.
By Eric Cunha, Alliance News news editor
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