Bank of England Monetary Policy Committee member Megan Greene has stated that unexpected interest rate cuts by the Federal Reserve could heighten the risk of persistent inflation in the UK, potentially necessitating a more restrictive policy stance from the British central bank.

While some economists suggest that the Bank of England might need to ease policy if the Fed cuts rates further, Greene expressed a contrary view. She emphasized that there are compelling reasons for the Bank of England to act independently rather than follow the Fed's moves.

Greene pointed out that the impact of foreign monetary policy transmitted through trade channels on UK economic growth and inflation remains "uncertain." However, she added that the effects of a surprise Fed rate cut on the UK via financial markets are "much clearer."

Based on her analysis of historical movements in US Treasury yields, Greene indicated that a decline in the 10-year US Treasury yield "would significantly boost UK economic activity and inflation." Overall, if unexpected Fed easing leads to a broader decline in US yields, it "could create upward pressure on UK growth and inflation," she concluded.

Greene also remarked that formulating domestic monetary policy based on potential surprises from another central bank is not reasonable. Nonetheless, she acknowledged that the Fed's actions are indeed a significant part of the broader economic environment affecting the UK.