Bank of England's Catherine Mann Advocates for Interest Rate Cut Amid Inflation Concerns
Mann's support for a half-point interest rate reduction stems from expectations of a short-lived inflation spike, influenced by a slowing jobs market.
Catherine Mann, a member of the Bank of England's Monetary Policy Committee (MPC), has expressed her support for a recent half-point cut in UK interest rates, indicating that she believes the anticipated inflation "hump" in the economy will be temporary.
Mann changed her stance from opposing the last rate cut in November to backing a reduction, surprising financial markets with her shift in position.
Last week, the Bank of England decided to lower the interest rate by a quarter-point to 4.5%, with Mann being one of two dissenters arguing for a larger cut.
The central bank predicts that inflation, recorded at 2.5% in December 2023, will rise to 3.7% by later in 2025, primarily due to increases in energy prices, water bills, and bus fares.
Mann advised against becoming overly concerned about the current inflation situation, suggesting that a cooling labor market would hinder wage growth, thus alleviating some inflation pressures.
She stated, "Don’t be dismayed by the hump, yet," indicating her belief that the economic slowdown may limit workers' ability to demand higher wages, further mitigating inflation.
The policymaker also noted that weak consumer demand is likely to restrict retailers' ability to increase prices in line with higher input costs, such as energy expenses.
Mann remarked on the influence of wage negotiations and corporate pricing power on inflation: "Wage settlements and the pricing power of firms will determine how much inflation outcomes will be driven by expectations as well as the one-off factors.
I judge that both will face strong headwinds."
Supporting her stance, Mann cited survey data revealing that many companies are considering layoffs due to adverse economic conditions, including recent hikes in the national living wage and increases in employer contributions to national insurance.
She referenced findings from the Office for National Statistics, which highlighted that a significant number of firms have cash reserves sufficient only for approximately four months of operation.
Additionally, Mann pointed out that cash flow vulnerabilities among businesses are often correlated with job cuts, a trend that may intensify as pandemic-related support measures diminish.
While advocating for a larger rate cut, Mann focused on the importance of signaling the Bank's intentions, stating that recent smaller reductions had not fully reached the financial markets or impacted borrowers effectively.
"It is not just the immediate policy decision that needs to be communicated.
Providing insights on the future path matters for the activist policymaker," she said, emphasizing the need to maintain a proactive stance on monetary policy.
Nonetheless, Mann did not advocate for immediate further rate cuts, acknowledging what she described as "structural impediments" to achieving the Bank's inflation target of 2%.
She concluded that a stance of monetary tightness would be necessary even after the current decision.
Mann changed her stance from opposing the last rate cut in November to backing a reduction, surprising financial markets with her shift in position.
Last week, the Bank of England decided to lower the interest rate by a quarter-point to 4.5%, with Mann being one of two dissenters arguing for a larger cut.
The central bank predicts that inflation, recorded at 2.5% in December 2023, will rise to 3.7% by later in 2025, primarily due to increases in energy prices, water bills, and bus fares.
Mann advised against becoming overly concerned about the current inflation situation, suggesting that a cooling labor market would hinder wage growth, thus alleviating some inflation pressures.
She stated, "Don’t be dismayed by the hump, yet," indicating her belief that the economic slowdown may limit workers' ability to demand higher wages, further mitigating inflation.
The policymaker also noted that weak consumer demand is likely to restrict retailers' ability to increase prices in line with higher input costs, such as energy expenses.
Mann remarked on the influence of wage negotiations and corporate pricing power on inflation: "Wage settlements and the pricing power of firms will determine how much inflation outcomes will be driven by expectations as well as the one-off factors.
I judge that both will face strong headwinds."
Supporting her stance, Mann cited survey data revealing that many companies are considering layoffs due to adverse economic conditions, including recent hikes in the national living wage and increases in employer contributions to national insurance.
She referenced findings from the Office for National Statistics, which highlighted that a significant number of firms have cash reserves sufficient only for approximately four months of operation.
Additionally, Mann pointed out that cash flow vulnerabilities among businesses are often correlated with job cuts, a trend that may intensify as pandemic-related support measures diminish.
While advocating for a larger rate cut, Mann focused on the importance of signaling the Bank's intentions, stating that recent smaller reductions had not fully reached the financial markets or impacted borrowers effectively.
"It is not just the immediate policy decision that needs to be communicated.
Providing insights on the future path matters for the activist policymaker," she said, emphasizing the need to maintain a proactive stance on monetary policy.
Nonetheless, Mann did not advocate for immediate further rate cuts, acknowledging what she described as "structural impediments" to achieving the Bank's inflation target of 2%.
She concluded that a stance of monetary tightness would be necessary even after the current decision.
