Learning about earnings: Can we rely on labour market slack to mitigate the latest supply shock? − speech by Megan Greene

Greene uses a detailed wage-data teardown to argue the MPC's reliance on labour market slack is misplaced. Her core claim is that private sector regular AWE has been understating pay growth because of compositional effects, and that adjusted wage growth of 3.4% to 4.5% sits above anything consistent with 2% inflation. She says wage disinflation is stalling near 3.5%, flags upside risk to the Agents' 2027 settlements guidance, and states plainly that she does not see the current stance as meaningfully restrictive. It is an explicit call to lean against second-round effects with tighter policy.

What’s new: Her hawkish instinct is known from her June speech, so the direction is priced. What is new is the analytical case: the quantified wedge between AWE and RTI, the judgement that AWE has been "consistently undercooking actual private sector wage growth since late-2025", the specific 3.5% rather than 3% plateau for pay growth over the coming year, and the claim that the Agents' 2027 settlements guidance is skewed to the upside because most settlements land in January to April when CPI is above 4%. Also new and pointed: the assertion that credit volumes do not show the stance biting. She gives no vote or committee split, so nothing here settles where the majority sits.

KEY FINDINGS

• After adjusting for composition and bonuses, she puts wage growth at 3.4% on AWE and 4.5% on RTI, and says both remain above target-consistent levels; her own estimate of target-consistent wage growth is closer to 3%. Undermines the slack-based justification for the current stance and gives the hawkish case a quantitative anchor rather than a rhetorical one.
• Forward indicators point to a plateau nearer 3.5% than 3%: DMP one-year-ahead expectations at 3.4% in the three months to September, the Indeed Wage Tracker stuck around 4% since the turn of the year, and Agents reporting 2027 settlements similar or only slightly lower than 2026. Removes the expectation of continued disinflation that a cut path relies on.
• She expects the risk to the Agents' settlements guidance to be to the upside, noting actual settlements beat the survey in each of the past two years (4% vs 3.7% in 2025, 3.6% vs 3.4% in 2026), and that most 2027 settlements will be agreed when inflation is above 4%. A concrete, dated upside risk to the wage round in Q1, which is where the front end would reprice.
• On activity and credit she is explicit: mortgage lending of £23.6bn in August, monthly consumer credit at £2.5bn, corporate net finance above the 2024 average, and 'It is not obvious to me from this data that our monetary policy stance is meaningfully restrictive.' Directly challenges the read that policy is already tight, which is the strongest hawkish line in the text.
• Labour market slack may have peaked: unemployment down from 5.2% in the three months to January 2026 to 4.7% in August, redundancies at just above 100,000 from a 150,000 peak, vacancies stabilising, and underlying employment growth rising through the year. Extends the argument beyond wages to the broader slack measures the MPC has leaned on.
• Inflation expectations are elevated and rising: household short-term expectations at 4.5% and longer-term at 4.3% in September, DMP own-price expectations at 3.7% versus 3.4% before the Iran conflict. Feeds the second-round effects argument and supports her risk-management framing.

FROM THE DOCUMENT

It is not obvious to me from this data that our monetary policy stance is meaningfully restrictive.

I therefore continue to believe we should proactively lean against the risk of second-round effects.

For the past two years, actual settlements have come in above what was projected in the Agents’ pay survey (4% in 2025 vs 3.7% in the pay survey; current estimate of 3.6% in 2026 vs 3.4% in the pay survey), so I expect the risk to the latest guidance is to the upside.

In my view, both remain above levels consistent with an inflation target of 2% and suggest there may be less labour market slack than we thought.