A Bank of England policymaker has called for interest rates to remain higher for longer to tackle inflation risks in the UK economy.
Catherine Mann, a member of the Bank’s rate-setting committee, expressed concerns about factors that could keep price rises above the official two per cent target.
Her comments came a day after the central bank voted to maintain the base rate at five per cent.
Mann, known for favouring a more restrictive policy, highlighted particular worries about services inflation.
She explained: “I am concerned that structural factors underpin an unsustainable path for the UK economy with embedded and sticky services inflation to render inflation above-target for longer and, yet at the same time, stagnant real activity.”
The economist warned of “more upside risks to overall inflation in the UK”.
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Mann, who sits on the Bank of England’s Monetary Policy Committee (MPC), believes interest rates need to remain high for long
PA
Mann explained her decision to vote for holding rates at five per cent during the recent Monetary Policy Committee meeting.
The rate setter cited growing evidence of consumer weakness, particularly among middle-income households.
“There is a further accumulation of evidence of consumer weakness across products and particularly middle-income deciles, as housing costs are a larger fraction of their consumption basket,” Mann said.
This indicates that more families are feeling the squeeze from rising rents and mortgage costs.
Mann revealed she had considered a rate cut in August due to the increasing impact of housing costs. However, she ultimately voted to maintain rates, citing risks to inflation remaining at the Bank’s target level.
The policymaker emphasised the need for continued restrictive measures to address inflation concerns.
She stated: “Policy therefore needs to remain restrictive for longer to purge these behaviours.”
This stance aligns with the cautious approach outlined by Bank of England Governor Andrew Bailey. He stressed the importance of keeping inflation low, warning against cutting rates too quickly or by too much.
The Bank’s recent decision to hold rates at five per cent follows a cut from 5.25 per cent last month.
This represented the first reduction since the start of the Covid-19 pandemic in 2020.
Despite the decision to halt rate cuts this week, analysts are pricing in at least one more reduction from by the end of 2024.
The Bank of England’s Monetary Policy Committee (MPC) will next convene on November 7, 2024.
