Bank of England official Megan Greene has challenged the prevailing argument that labour market slack may sufficiently contain wage pressures following recent energy price volatility. Speaking at the London School of Economics on October 20, 2026, Greene addressed how negative supply shocks propagate through the UK economy, specifically focusing on the wage-setting channel.
Greene noted that while the Monetary Policy Committee (MPC) has identified slack in the labour market—evidenced by the ratio of vacancies to unemployment relative to equilibrium—this may not fully insulate the economy from inflation. She highlighted that wages can act as a mechanism for temporary supply shocks to become embedded in domestic inflation, particularly if workers attempt to protect real incomes and firms subsequently raise prices to defend profit margins.
The speech contextualized these concerns within a period of significant energy price volatility. According to the Bank's data, wholesale gas prices have risen to nearly triple their levels recorded at the start of 2026, while oil spot prices have nearly doubled compared to early January 2026 levels. These figures are presented using an index where 100 represents the price level on January 1, 2026.
Greene emphasized that while not all wage growth is inflationary—noting that wage increases driven by productivity improvements may have limited implications for inflation—the services sector remains particularly vulnerable. In this sector, labour constitutes a large share of total costs, making wage movements a significant determinant of both firm costs and consumer incomes.
Ultimately, the speech suggests that the extent to which the latest energy shock feeds into persistent inflation through second-round effects remains a critical consideration for policymakers. The Bank continues to monitor whether the current vacancy-to-unemployment ratio is sufficient to restrain the wage-setting channel during these periods of elevated energy costs.