BOE’s Mann Signals Caution on Rate Cuts, Seeing Higher Inflation

Catherine Mann (Hollie Adams/Bloomberg)

(Bloomberg) -- Bank of England policy maker Catherine Mann hinted that she is not ready to back interest rate cuts, warning of a resurgence in UK inflation and rapid increases in services prices. 

The official who is the most hawkish of the nine members of the Monetary Policy Committee pointed to stubbornly high wage growth and services inflation — both of which are running near 6% — as roadblocks to the UK central bank meeting its 2% target sustainably.  

“The 2% that we have seen is a touch and go, meaning we’re going to be above 2% for the rest of the year — and that matters for my decision making,” Mann said on Wednesday at the Alliance Manchester Business School. Mann said she wanted to see a “sustained deceleration” in services inflation.

Mann’s remarks suggest she is not ready to let up on her resistance to interest rate cuts, despite headline inflation falling to the BOE’s 2% target in recent data. 

The comments distance her from other policy makers who are considering easing policy ahead of the next meeting on Aug. 1. The BOE said in June that the decision not to cut rates from a 16-year high was “finely balanced” for some.

Investors will pore over comments by BOE rate-setters in the coming weeks after they were silent during an election campaign blackout. 

The hawks have used the first days since the blackout ended to press the case to keep rates on hold. 

Earlier on Wednesday, BOE Chief Economist Huw Pill also signaled his reluctance to ease policy too early, saying the timing of a move is still an “open question.”

Investors interpreted Pill’s remarks as indicating a reluctance to move just yet. Traders trimmed bets on a quarter-point rate cut at the BOE’s August decision, seeing less than a 50% chance of such a move for the first time since the BOE’s last announcement in June. The pound extended gains, rising 0.4% to $1.2835.

Two of the BOE’s rate-setters are already voting for cuts — Swati Dhingra and Deputy Governor Dave Ramsden. Economists believe that the three hawkish external rate-setters are unlikely to back an August cut. It leaves the decision hinging on four remaining internal rate-setters, including Governor Andrew Bailey and Pill.

However, Pill signaled in his speech on Wednesday that he has lingering concerns over stubborn price and wage pressures.

“It is hard to dispute the case that inflation persistence in the UK continues to prove – well – persistent,” Pill said in the text of a speech released Wednesday. “More data will come before we take our next policy decision at the MPC meeting on 1 August. But we have to be realistic about how much any one or two releases can add to our assessment.”

On Monday, rate-setter Jonathan Haskel said he would hold rates steady until he saw more evidence of underlying price pressures subsiding, pointing to an impaired labor market. 

Mann also pointed to pressures in the labor market with wage growth still high and unemployment at low levels historically. 

“We still see labor market tightness as revealed wage growth, that still remains well away from target consistent wage growth,” she said.

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