BoE's Greene: UK's 'more constrained' supply side is leading to 'stickier' inflation than the US

investmentweek.co.uk:

Megan Greene (pictured), said that inflation is above target in both countries, however, the issue is of ‘greater concern’ in the UK.

In a speech given at ratings agency Fitch's London headquarters yesterday (15 February), Greene said while inflation was above target in both countries, the issue is of «greater concern» in the UK.

UK supply is measured by potential growth and Greene argued the UK has «long lagged behind on this metric».

Potential growth in the UK was estimated by the MPC at 1% this year, rising to 1.3% in 2026. Meanwhile, in the US, the Congressional Budget Office estimated that US supply growth would rise from 2% to 2.2% between 2024 and 2026.

Greene explained  UK productivity is expected to remain «subdued» over the next two years, adding that between 2010 and 2019, UK potential productivity growth averaged 0.6%, below the 1.8% average in the decade before the Global Financial Crisis.

She noted that US productivity growth also moderated after the GFC but remained «stronger» than the UK.

BoE's Greene: Monetary policy will need to be restrictive 'for an extended period'

In the fourth quarter of 2023, US productivity enjoyed a growth boom as potential productivity hit 3.2%, a measure the CBO expects to ease but remain «well above» the UK between 2024 and 2026.

Greene, who has sat on the MPC since July 2023, cited investment as a way to boost productivity growth.

«The UK has seen roughly flat business investment between 2016 — when the Brexit referendum was held — and 2020, though it has grown moderately since the pandemic,» Greene said.

«The stark difference in investment growth between the UK and other advanced economies since the Brexit referendum strongly suggests this is one piece of the productivity