BoE’s Mann: Inflation fears prompted vote for half-point rate hike

The Bank of England (BoE) building is reflected in a sign, after the BoE became the first major global central bank to hike rates since the coronavirus disease (COVID-19) pandemic, London, Britain Brittany, December 16, 2021. REUTERS / Toby Melville

LONDON, Feb 25 (Reuters) – Bank of England policymaker Catherine Mann said she had voted to raise interest rates by half a percentage point this month. ci, as she saw no signs that public price expectations were easing, which risked keeping inflation too high.

Mann was one of four members of the Monetary Policy Committee (MPC) to vote to raise interest rates to 0.75% from 0.25% this month, rather than the increase to 0.5% supported by the majority of the committee.

“For me, the data was still showing very strong expectations and I thought it was important to mitigate those expectations by using a 50 basis point increase,” she said in a video chat. online with the Society of Professional Economists of Great Britain.

“There was very little in the data that showed a decline in expected wage increases, expected price increases or anywhere else in financial markets … other than gilts,” she added.

UK inflation hit 5.5% in January, its highest level in nearly 30 years, and Mann said all MPC members agreed it was “well, well above of our goals”.

But policymakers disagreed on how well Britain’s economy has recovered from the COVID-19 pandemic and the likelihood of lasting damage to the labor market in the form of lower jobs. employment or participation rate, she said.

“I think it’s quite dangerous to talk about permanent changes in labor market participation at this stage,” she said.

Official data shows a drop in the proportion of older people working or looking for work compared to before the pandemic, and about half a million fewer people in employment overall.

Part of this drop probably also reflects European Union nationals who left Britain after Brexit or during the pandemic, either temporarily or permanently.

Mann said central bankers around the world had been blindsided by the rate at which energy prices had risen, in part due to geopolitical factors they could not predict.

If 2022 inflation dynamics mirrored those of last year, inflation would exceed the BoE’s latest forecast, which does not see inflation returning to its 2% target before early 2024, it said. she adds.

The BoE also needed to keep an eye on policy tightening from the US Federal Reserve and potentially the European Central Bank. While higher rates overseas would tighten Britain’s financial conditions, they could also weaken the pound and push up inflation if the BoE lagged the curve, she said.

Financial markets currently expect the BoE to hike rates to 0.75% in March and 1.75% by the end of 2022, with relatively little change despite Ukraine’s invasion by Russia.

Reporting by David Milliken; edited by William James and Andy Bruce

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