Trump election boosts UK inflation risks, Bank of England's Mann says

THE Bank of England should keep interest rates on hold until upside risks to inflation – including those posed by the election of Donald Trump as the United States’ next president – dissipate, a top BOE official said on Thursday (Nov 14).

Catherine Mann, the only Monetary Policy Committee member to vote last week against cutting borrowing costs, said in a speech that global shocks had frequently played a larger role than domestic pressures in driving excess inflation in Britain.

“The latest political developments across the Atlantic have not made a disorderly trade scenario less likely, which would have consequences for output and inflation in the UK,” Mann told the annual conference of Britain’s Society of Professional Economists.

Trump has pledged to impose a universal 10 per cent tariff on imports and 60 per cent on Chinese goods.

Responding to a question about the inflationary impact of Trump’s second term as president, Mann said it could increase economic volatility and central banks needed to ensure those inflation pressures did not get embedded.

“There (are) certainly the factors of trade fragmentation, financial market fragmentation, that are upward biased in terms of underlying inflation pressures,” she said in a question-and-answer session after her speech.

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“It is the job of the central banks to ensure that those underlying pressures do not get manifested in the inflation rate,” she said.

Mann said the risk of global shocks should be incorporated into the monetary policy decision-making process, and that economic volatility in general tended to create higher inflation and require higher interest rates to tackle it.

“In the current context, an activist stance holds the policy rate firmly until sufficient evidence on diminished inflation persistence is revealed, and then to move forcefully,” Mann said. REUTERS