(Bloomberg) -- Bank of England policymaker Megan Greene warned that interest-rate cuts may be delayed if British firms excessively hold onto workers after facing post-pandemic staff shortages.

In a speech on Thursday, Greene said that data before the Monetary Policy Committee next meets in June will be crucial in determining how long the “last mile” in the fight against inflation will be.

She hailed “good news” from the jobs market in recent months but cautioned that the “hoarding” of staff may be keeping wage pressures high and unemployment too low.

The remarks suggest Greene is still hesitant over cutting rates next month but is watching upcoming data releases closely. She has been one of the most hawkish voices on the MPC and has previously signaled a reluctance to ease policy too early.  

The BOE is concerned that a tight labor market and high wage growth are fueling domestic inflationary pressures. Firms may be hesitant to let go of workers despite subdued economic activity, fearing they will be unable to hire again if needed.

Greene said labor hoarding can help explain continued high wage growth and why UK unemployment has remained at historically low levels, even after the economy slipped into a mild recession last year.

However, if this hoarding of staff suddenly unwinds, unemployment may rise much further than the BOE forecasts, she said, adding that this would warrant a looser monetary policy stance. She pointed to evidence of labor hoarding easing since the end of 2023, which could unwind further if firms’ profit margins are squeezed.

The BOE edged closer to its first interest rate cut since the start of the pandemic at its meeting in May. However, minutes from the meeting suggest there is a wide range of views on the MPC over whether underlying price pressures are cooling by enough to warrant a cut over the summer. Hawkish rate-setters — including Greene, Jonathan Haskel and Catherine Mann — have signaled their unease over the tightness of the labor market.

Official data earlier this week showed signs that the labor market is slowly loosening with unemployment inching higher and private-sector pay growth pulling back. Regular wage growth was still running at 6%, well above levels the BOE sees as consistent with achieving its 2% inflation target, and the ratio of unemployed people to vacancies remains historically low.

Greene said she needs to see more evidence of key indicators cooling before voting to cut rates. The MPC has stressed the importance of wage and price data before the June meeting in determining whether it can cut interest rates. 

“Inflation persistence has waned since I joined the MPC last July,” Greene said. “Data released ahead of our next meeting will give a clearer indication of how far along the ‘last mile’ we have come.”

Greene also suggested that the BOE should only loosen policy slowly when it begins to cut rates. She said there are reasons to believe that the long-term neutral interest rate is higher than it was in the decade following the global financial crisis.

“Given all the uncertainty around inflation persistence, a gradual path is warranted,” she said.

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