A rate-setter at the Bank of England backed a “cautious” approach to cutting interest rates despite the “uncomfortable” recent performance of the economy.

“The macroeconomic news over recent months has been uncomfortable,” Megan Greene, an external member of the Monetary Policy Committee (MPC) said.

“GDP has roughly flatlined since Spring of last year and expectations among firms for employment have deteriorated,” Greene continued.

But despite the subdued performance of the economy, Greene said monetary policy will have to “remain restrictive” in order to bring inflation back to the two per cent target.

“Domestic cost pressures have surprised us to the upside and our outlook for inflation includes a near-term jump in inflation alongside a larger negative output gap,” she continued.

Greene’s comments reflect the challenging outlook facing the Bank of England, as it seeks to securely anchor inflation back at two per cent.

The Bank cut interest rates by 25 basis points last week and halved their growth forecasts for 2025, reflecting the sluggish performance of the economy at the end of 2024.

However, officials were uncertain whether the growth slowdown has been driven by weakness in supply or demand, which would require different policy responses.