BoE’s Megan Greene Warns Central Banks Can No Longer Ignore Frequent Supply Shocks

Bank of England monetary policy committee member Megan Greene has argued that central banks can no longer afford to simply “look through” supply shocks, saying the world is entering an era where disruptions to the supply side of the economy will be more frequent and more severe. In a recent appearance on the Bloomberg Odd Lots podcast and in a broader profile on monetary policy, Greene highlighted how events like the Covid pandemic, the war in Ukraine, and the ongoing war in Iran have hammered economies from the supply side, leaving central banks with tools that are designed mainly to manage demand and offer limited levers in response.

Greene pointed out that since the pandemic, supply chain disruptions, energy shocks, and geopolitical tensions have repeatedly pushed inflation up while weighing on growth, creating a “terrible situation” for central bankers. In the UK, she noted that the level at which inflation starts to noticeably bite households and firms has shifted lower, currently hovering around 3–3.5%. Once inflation crosses that psychological band, pricing behaviour and expectations become more sensitive, increasing the risk that inflation becomes entrenched.

As reported in Bloomberg’s coverage, Greene has become a key voice at the Bank of England advocating a more cautious stance on interest rate cuts, especially amid uncertainty about how persistent inflation pressures really are. Drawing on the UK’s recent experience, she has warned that an overreliance on the conventional wisdom that supply shocks are “transitory” can lead to a delayed policy response, making it harder to bring inflation back to target without sharper economic trade-offs later.

In her broader analysis, Greene has also sounded the alarm that climate change, escalating geopolitical rivalries, and the weaponisation of trade and technology are likely to generate more supply shocks going forward. This, she argues, means central banks must rethink their playbook. Instead of automatically assuming they can ignore supply‑driven inflation spikes, they should be prepared to offset such shocks more quickly, particularly when inflation has already exceeded the target for an extended period and firms are adjusting prices more frequently.

The implications for UK policy are that maintaining a relatively restrictive monetary stance, at least for now, may be necessary to contain inflation risks even while the real economy shows signs of resilience. As Greene has noted in her recent public remarks, the cost of easing too quickly—allowing inflation to re‑anchor above target—currently appears greater than the risk of holding rates that are slightly more restrictive than the market expects. Consumers and businesses, in turn, may face an extended period of higher borrowing costs, even as growth remains modest and consumption hesitant.