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Megan Greene said US tariffs and conflict in the Middle East could be problematic for inflation

A member of the Bank of England's monetary policy committee (MPC) said Threadneedle Street has found itself in an "uncomfortable place" in terms of the future prospects of inflation and growth, as rate-setters look to macro events to guide the interest rate path.

Speaking at the National Institute of Economic and Social Research, Megan Greene laid out the delicate balancing act the MPC faces, with US tariffs heralding a potential negative supply shock alongside a volatile economy in terms of productivity and growth.

"The main messages for me remain the same: underlying activity is weak, the labour market has loosened further and the disinflationary process continues, albeit with an elevated plateau of inflation around 3.5% for the second half of this year," she said.

She added that she was worried about both the demand and supply sides of the economy, with turmoil in the Middle East and oil prices also a consideration.

"Mortgages resetting at higher rates are likely to continue to weigh on consumption even as interest rates are on a downward trajectory," she said. "And I expect precautionary savings will rise – not drop – as the labour market softens further. All else equal, this would be disinflationary."

On Thursday, the bank opted to hold its key interest rate at 4.25%. Members of the MPC voted by 6-3 to keep borrowing costs on hold following their reduction announced in May.

Three members — Swati Dhingra, Dave Ramsden and Alan Taylor — backed a quarter-point cut to 4%. Dhingra and Taylor had backed a half-point reduction at the meeting in May.

At the time, the governor of the Bank of England, Andrew Bailey, said the world had become “highly unpredictable”.

Greene struck a similar tone in her speech, adding that she worries about "the near-term profile for inflation this year, which in my view now resembles more of a plateau than a hump."

It may take until the beginning of next year for inflation to fall to target, she said.

The bank's latest cut had been widely anticipated by markets, particularly after inflation data for May showed prices rising 3.4% — well above the Bank’s 2% target.

That represented a drop from April's 14-month high of 3.5%, driven by a wave of household bill increases. However, the Office for National Statistics (ONS) said an error in vehicle tax data meant April’s inflation rate should have been 3.4%. Despite the mistake, the ONS has not issued an official revision.

Traders are betting on an 84% chance that policymakers will cut from 4.25% to 4% at the next meeting.