Bank rate-setter warns further interest rate rises needed to curb inflation

Catherine Mann, one of the Bank of England’s rate-setters, has signalled she will back a further interest rate increase at next week’s meeting after warning about the possibility of inflation persistence.

Speaking at the Canadian Association for Business Economics, Mann, one of the Bank of England’s more hawkish policymakers, indicated that she did not back pausing interest rate rises on 21 September, arguing that the UK central bank still needed to do more to ensure tighter monetary policy was working.

She said “the risk of tightening too little is more salient” than tightening too much.

“In my view, holding rates constant at the current level risks enabling further inflation persistence, which will have to be unwound eventually with a worse trade-off,” she added.

Mann warned that allowing inflation, now at 6.8%, to remain above the BoE’s 2% was not a risk to be taken lightly.

She continued: “The longer this overshoot is allowed to continue, the more likely a departure from the old ‘low inflation, low volatility’ steady state.

“I would rather err on the side of over-tightening,”

Mann, an external MPC member, has regularly voted for faster interest rate rises than the majority on the committee in the past two years, and her words differed significantly from other rate-setters’ recent comments.

With interest rates having risen a record 14 consecutive times to 5.25% since December 2021, home owners have faced dramatic increases in their fixed rate and variable rate mortgages.

But last week, BoE governor Andrew Bailey and Sir Jon Cunliffe, outgoing deputy governor for financial stability, told MPs that rates were now near their peak.

Markets expect the central bank to raise rates by a further 0.25 percentage points to 5.5% next week in its bid to tame inflation.



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