The Bank of England should exercise caution when considering lowering interest rates too quickly, according to Catherine Mann, a member of the Bank’s Monetary Policy Committee (MPC). In an appearance on the Financial Times’s The Economics Show podcast, Mann expressed concerns that wage growth and price pressures could remain elevated, suggesting a potential structural shift in the UK economy towards higher inflation.
Mann, a former chief economist at the Organisation for Economic Co-operation and Development, emphasised that “there is an upwards ratchet to both the wage-setting process and the price process,” adding that this dynamic “may well be structural, having been created during this period of very high inflation over the last couple of years.” She cautioned that unwinding this trend could be a lengthy process.
While UK inflation has eased from a four-decade high of 11.1 percent to 2 percent, aligning with the Bank of England’s target, the MPC remains concerned about high pay growth and strong services inflation, both of which persist at 5.7 percent. Upcoming figures on Wednesday are anticipated to show a slight increase in the headline rate of price growth to 2.3 percent in July, alongside a cooling of services inflation. Wages are expected to have accelerated by 5.4 percent in the three months to June.
Mann’s comments underscore her long-standing preference for maintaining restrictive monetary policy to prevent inflation from persistently exceeding the Bank of England’s 2 percent target. Since joining the MPC in 2021, she has consistently voted to either raise rates or leave them unchanged, establishing herself as the most hawkish member of the nine-strong group responsible for setting interest rates in the UK economy every six weeks.
Despite her stance, Mann acknowledged that steady progress in curbing inflation has somewhat tempered her view. When asked to rank her current level of hawkishness out of ten, she responded, “I would say I’m a seven. But in the past, I have been a ten.” In the most recent MPC meeting, Mann, along with Huw Pill, the chief economist at the Bank of England, and fellow external MPC members Jonathan Haskel and Megan Greene, voted to maintain the base rate at 5.25 percent. However, they were narrowly outvoted 5-4, with Andrew Bailey, the governor of the Bank of England, among those in favour of cutting borrowing costs by a quarter point to 5 percent – the first reduction in over four years.
Mann concluded by emphasising the importance of looking beyond headline inflation figures, stating, “Inflation has come down, but if we look underneath the headline, we should not be, in the UK – and I think that’s true in the US as well – seduced by headline inflation.” She highlighted the reduction in the volume of available workers for businesses to hire as a factor that could maintain high inflation and constrain economic growth.
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