Bank of England's Greene says inflation risks are bigger than thought

LONDON, Oct 20 (Reuters) - Bank of England policymaker Megan Greene said the risks of a pickup in broader inflation as a result of the energy price shock from the Iran war were greater than the BoE expected and she reiterated her view that interest rates should go up.

Greene – part of a minority on the BoE's Monetary Policy Committee that has voted for higher rates – said it was better to act as if the so-called second-round effects from the energy shock were stronger and then adjust policy later if needed.

"I therefore continue to believe we should proactively lean against the risk of second-round effects," she said in a speech at the London School of Economics on Tuesday.

So far the BoE has not followed the US Federal Reserve and the European Central Bank in increasing borrowing costs in response to the Iran war.

But Governor Andrew Bailey, who has backed keeping rates on hold, has said that the longer the conflict goes on, the harder it will be for the BoE not to respond, although he thought inflation pressures remained "quite subdued".

Investors expect the BoE will raise its benchmark Bank Rate by a quarter of a percentage point to 4% next month.

In her speech, Greene said she believed wage growth was running higher than official data has suggested and pay settlements due in early 2027 might come in higher than thought given inflation was likely to be running around 4% then.

She said signs of resilience in Britain's economy this year, despite the energy price jump, added to the case for higher borrowing costs.

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

(Writing by William Schomberg; editing by Sam Tobin and Nia Williams)