BOE’s Mann calls for ‘aggressive’ policy to tackle inflation
BANK of England (BOE) policymaker Catherine Mann has raised concerns that the current prolonged period of above-target inflation could fuel expectations of future price increases.
Speaking at the annual meeting of the National Association for Business Economics in Texas, Mann said an “aggressive” approach to tackling inflation was needed to stop price pressures becoming embedded.
“Going forward, a very important ingredient for my decision-making is the duration of inflation, and how long it is exceeding target,” Mann said. “As that duration exceeding target lengthens... medium-term expectations do have a tendency to drift.”
Household and business expectations of inflation currently appeared to be well-anchored, meaning they showed inflation falling back towards the BOE’s 2 per cent target over the medium term, she said.
Nevertheless, Mann – one of the four members on the BOE’s nine-strong Monetary Policy Committee (MPC) who wanted to hike rates to 5.5 per cent last month – said she was still worried about persistent rises in the cost of living. The longer inflation remains above target, Mann said, the more likely expectations are to “drift”.
This could prompt workers to demand higher wages, driving a vicious cycle, according to Mann. The BOE does not expect inflation to fall back to target until the second quarter of 2025.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
She added that monetary policy “has to be more aggressive because it has to address both a drift in expectations as well as the actual inflation above target”.
Mann said the “risks of having more embeddedness” in inflation explained her continued calls to hike rates, despite the majority of the MPC in September preferring a pause in the rate-hiking cycle.
“If inflation gets embedded for longer above target, then getting it to target is going to require more policy action for longer and that I’d rather not have to do because people become backward looking,” Mann said.
Mann said inflation was likely to show an “upward bias” in future shocks, meaning a higher neutral rate of interest is “a very plausible outcome”. BLOOMBERG
Share with us your feedback on BT's products and services
