The Bank of England's Megan Greene on Monetary Policy in a World of Supply Shocks

Conducting monetary policy in the United Kingdom requires navigating a landscape defined by persistent, successive supply-side shocks rather than traditional demand-side fluctuations. Megan Greene, an external member of the Bank of England’s Monetary Policy Committee, highlights how geopolitical instability, energy volatility, and the rise of economic statecraft have created a structural environment of radical uncertainty. Unlike historical periods where central banks could "look through" temporary shocks, current conditions demand proactive scenario analysis to manage inflation risks. The committee faces the challenge of balancing weak economic growth against the threat of second-round effects, where households and firms become increasingly sensitive to price increases. This shift necessitates a move away from rigid forecasting toward flexible risk management, as traditional models struggle to account for the multiplicative impact of ongoing global disruptions on domestic price and wage-setting behavior.