One of Bank of England’s hawkish policymakers said on Monday that she didn’t support pausing the interest rate increases, and that the UK Central Bank still had to do more to make sure that tighter monetary policies were working.
Catherine Mann, speaking to an audience of businesspeople in Canada, reacted to recent comments by senior members of Monetary Policy Committee who suggested that the BoE is close to the top of interest rates. She suggested they could consider holding the current rate of 5.25 percent.
Her forthright remarks suggest that there will be an active debate at the next nine-member panel meeting on September 21, on whether or not to raise the cost of borrowing.
Mann said that if BoE did not act decisively, rates could rise above their current 15 year high.
Mann said that it was not wise to allow inflation to continue at its current 6.8%, above the BoE target of 2%. He added: “The longer the overshoot continues, the more likely we are to depart from the ‘low-inflation, low-volatility’ steady state.”
She added, “I’d rather overtighten than undertighten.”
Mann, a member of the MPC who is not a committee member, has consistently voted to raise interest rates faster than the majority in the last two years. Her words are different from recent comments made by other rate-setters.
Huw Pill (chief economist at the BoE) stated last month that he preferred to keep rates close to their current levels for an extended period rather than raise them.
Last week, BoE Governor Andrew Bailey and Sir Jon Cunliffe (outgoing deputy governor for Financial Stability) told MPs rates are now close to their peak. Swati Dhingra is a member of the fourth MPC. She believes borrowing costs are already too high.
Mann said she wasn’t yet sure if interest rates are high enough to “restrict” spending and restrain the economy.
She warned that it would be a “risky gamble” to assume that the central bank has done enough to bring down inflation. If not enough is done, the price increases could remain at around 3-4 percent, instead of falling to the target 2 percent.
She said that “we need to communicate our commitment and act on it sooner rather than later” to achieve the 2% target. The BoE would be able to reverse the rises in interest rates if they became too high.