Bank of England (BoE) policymaker Catherine Mann has signaled her support for further interest rate increases to combat persistent inflation, a stance that contrasts with other officials. Speaking at the Canadian Association for Business Economics on Monday, Mann warned about the risk of "inflation persistence" if rates are held constant at their current level.
Mann, along with Jonathan Haskel, was one of two rate-setters on the nine-member Monetary Policy Committee (MPC) who supported a larger half-point increase in rates last month. Both pointed to the threat of persistent inflation and rapid private sector wage growth as reasons for concern. Mann's recent remarks underscore her belief that "the risk of tightening too little is more salient" than tightening too much.
She further elaborated that maintaining the policy rate lower for longer could risk inflation becoming more deeply embedded, necessitating more overall tightening to both adjust inflation itself and eliminate the embedded inflation resulting from a sustained duration above target. "This is why I would rather err on the side of over-tightening," Mann concluded.
The BoE rate-setter also suggested that the Bank’s modeling may have underestimated the strength of domestic demand, which has put pressure on prices. Inflation decreased to 6.8% in July from over 11% last year, but core inflation increased month-on-month. August's reading is expected to show a slight increase due to rising fuel prices.
These comments come ahead of the Bank's next interest rate decision scheduled for September 21, with markets predicting a 25-basis-point hike that would raise the base rate to 5.5%.
Mann's stance diverges from other MPC members and BoE Governor Andrew Bailey, who last week indicated that the current cycle of rate hikes might be nearing its peak. Chief Economist Huw Pill also endorsed a "Table Mountain" strategy, advocating for rates to remain high and steady for an extended period.
Despite this, Mann remained firm in her belief that rates need to increase further to prevent the risks of further inflation persistence from crystallizing.
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