Bank of England rate-setter Catherine Mann called for a “persistent hold on Bank rate” to fight rising inflation — but stands ready for “rapid” interest rate cuts should the UK economy deteriorate.
Monetary Policy Committee member Mann held out for a rate hold when the nine-strong body voted 5-to-4 to cut the interest rate by a quarter point to 4% earlier this month.
This took the interest rate to its lowest level since March 2023 and was its third rate cut this year and the fifth since last August.
However, external member Mann (pictured) pointed out that inflation, currently at 3.8%, “has been above target for four years now, excluding three months at 2% or less in 2024,” in a central banking conference in Mexico.
The Bank of England forecasts that inflation will rise to 4% in September, driven by energy costs and food prices.
Mann added: “UK gross domestic product has remained weak, with the level just barely above pre-Covid.
“Growth rates have averaged below 2% since the end of 2022, and are projected to remain subdued throughout the next three years.”
Earlier this month, the economy expanded by 0.3% in the second quarter of the year, down from 0.7% in the first three months of the year, but ahead of expectations of just 0.1% growth.
Mann said this combination of high inflation, which calls for high interest rates, with low growth, which calls for lower rates.”
She said this mix “makes the monetary policymaker’s job harder in both decision-making and communication”.
Earlier this month, Bank of England governor Andrew Bailey agreed with Mann, saying that rate-setters are now faced with “genuine uncertainty” because there are risks both of inflation overshooting its forecasts and of growth undershooting.
The committee’s next meeting is on 18 September, and the external member signalled her voting intention.
Mann said: “A more persistent hold on Bank rate is appropriate right now, to maintain the tight — but not tighter — monetary policy stance needed to lean against inflation persistence persisting.
“However, I stand ready for a forceful policy action, in the form of larger, more rapid Bank rate cuts, should the downside risks to domestic demand start materialising.
“An activist policy strategy is needed to clearly communicate about the current and future path for policy”.
