Interest rates should be kept on hold for a sustained period due to “persistent” inflation, said Bank of England interest rate-setter Catherine Mann.
“I prefer a longer hold . . . and make a bigger cut when you do to make it very clear that this is not in response to the financial markets or other things,” said the external Monetary Policy Committee member at a Bloomberg event.
Her comments come after the Bank’s nine-strong Monetary Policy Committee voted 7–2 earlier this month to maintain Bank rate at 4%, with two external doves, Swati Dhingra and Alan Taylor, pressing to cut the interest rate by a quarter point to 3.75%.
Mann said there were “a range of views on the prospects for activity and the prospects for inflation” on the MPC.
She said: “My view is that the inflation scenario we painted earlier this year [in the Monetary Policy Committee’s August report] of a high risk of inflation persisting for longer, is now playing out.”
“Now, I am aware of the risk on the downside, and I put some weight on that, but I put much more weight on inflation persisting.”
Mann added: “I do think that policy is relatively loose, compared to the balance of inflation prospects, relative to activity. So, I voted to hold rates.”
However, yesterday, Bank of England deputy governor Sarah Breeden said she believes the current uptick in inflation, which has been partly driven by higher food costs, is a “hump” which should ease.
“I do not see evidence that the disinflation process is veering off track,” she said in a speech at Cardiff Business School.
“Instead, it remains my central case that the ‘hump’ will prove just a bump in the road.”
The Bank expects that the cost of living, currently at 3.8%, will hit 4% this month, before falling back to its 2% target by mid-2027.
But in August, the central bank set out a potential scenario where a combination of weak productivity growth and fast-rising wages led to more lasting inflationary pressure than in its main forecast.
Markets do not expect a further base rate cut this year.
