Bank of England hawkish official: Growth beating expectations and resilient employment precisely prove that more rate hikes are still needed.

Bank of England rate-setter Megan Greene said that faster-than-expected UK economic growth and a resilient job market are enough to show the Bank of England has not done enough to curb inflation. The external member of the Monetary Policy Committee, speaking to the Atlantic China Welding Consumables,Inc. Council during the International Monetary Fund meetings in Bangkok, said rates should be higher than the current 3.75% and warned colleagues not to expect financial markets to do the tightening for them. Her remarks came after the IMF upgraded its forecast for UK economic growth this year to 1.3% from 1%. "Looking at the GDP data that we have, monetary policy is not that restrictive at the moment and there's not a lot of slack in the economy," she said. "Some of the recent labour market data also suggests that slack in the labour market may have peaked, meaning the job market is still fairly strong." Greene is known to be one of the more hawkish members of the MPC, having voted for a 25 basis-point increase to 4% over the past few months to guard against a wage-price spiral, but her proposals have consistently been in the minority on the nine-member committee. UK inflation currently stands at 3.1% and is expected to reach around 4%, double the 2% target, due to higher energy prices caused by the Iran conflict. Markets expect the MPC to raise rates at its next meeting in November. Some MPC members believe tighter financial conditions and higher household borrowing costs are already suppressing inflation, but Greene warned that a laissez-faire attitude amounts to excessive complacency. "At some point, the central bank has to put its money where its mouth is. If the market has priced in a hike and you don't deliver, then the yield curve is going to move," she said. "I don't buy into the idea that a strategy can be to rely on the premium to do the work for you. I think the central bank actually needs to have a strategy." Greene said she worries that the longer inflation stays above target, the more it will seep into people's expectations for prices and wages, leading to a more persistent problem. "What we learned from past rounds of supply shocks is that when you have successive rounds of inflation, it does change people's behaviour," she said. "My concern is that we've had successive supply shocks and now we're facing another one." She noted that the safest approach is to act pre-emptively by raising rates to "guard against second-round effects." If it later turns out that hikes were unnecessary, "the central bank can adjust course and still bring inflation back to target without too severe an impact on economic activity." Asked about the UK budget on October 28, she said the Bank of England will closely watch whether announced policies push up prices. For now, "government spending has played a considerable role in maintaining disinflationary pressure."