Bank of England’s Mann calls for ‘forceful’ action on rates

BANK of England (BOE) policy maker Catherine Mann called for “forceful” action to contain inflation, a signal she may support more out-sized increases in interest rates as soon as next week.

The economist said an upward drift in expectations about where consumer prices are headed has become “apparent” and that officials “cannot be complacent”.

“Acting more forcefully now, to ensure that the drift does not become the norm, is designed to avoid depending on a deeper and longer contraction to return inflation to target,” Mann said in the text of a speech on Monday (Sep 5).

During a question session after the speech, Mann raised the possibility of an even bigger hike than the BOE has delivered in this tightening cycle.

Asked whether her remarks open the door to a 75-basis point increase from the BOE, the scale delivered by the US Federal Reserve, Mann replied, “It’s an important question. What we need to be doing is to make sure the medium term inflation expectations don’t drift.”

The remarks are the first major comment from a BOE official since the rate increase on Aug 4, which came with an outlook that inflation will top 13 per cent later this year. Since then, natural gas prices have soared and banks including Goldman Sachs and Citigroup have issued alarming forecasts for much stronger price growth.

The UK central bank delivered a half-point rate rise last month to help curb the strongest inflation in 40 years and signalled it’s likely to act again in the coming months. Investors are betting the BOE raises its key rate to 4.5 per cent by May from 1.75 per cent currently.

While the BOE was the first among major-economy central banks to raise rates after the pandemic, it has fallen behind the pace of increases delivered by the Federal Reserve in the US. That along with soaring consumer prices and a weakening outlook for the economy has depressed the value of the pound.

“Fast and forceful monetary tightening superior to gradualist approach,” said Mann, one of the more hawkish members of the 9-person Monetary Policy Committee.

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Wage pressures

There are signs in the “upward bias to wage negotiations and me-tooism”, she said, in an apparent reference to the strikes and union bargaining across several industries.

She said tighter monetary policy is needed to avoid a repeat of the 1970s era of “ratcheting-up and persistently high inflation”.

Acting early and firmly “reduces the degree of restraint” needed in the future, she said. “We cannot be complacent in the face of the short-term spikes and medium-term drift.”

BOE governor Andrew Bailey will testify to Parliament on Wednesday about the outlook, ending a summer lull where officials were largely silent. BLOOMBERG