The Bank of England is being urged to adopt a more activist approach to setting interest rates by a rate-setter who argues that inflation will not run out of control.
Catherine Mann, a member of the rate-setting Monetary Policy Committee, believes that the Bank of England should be more willing to vote for more radical shifts to monetary policy if its to keep inflation anchored at its 2% target in the near future.
Mann commented: “With substantial volatility coming from financial markets, especially from cross-border spillovers, the founding premise for a gradualist approach to monetary policy is no longer valid.”
Speaking to the Reserve Bank of New Zealand, she said: “International spillovers have dominated the signals from UK domestic data and monetary policy actions.
“With substantial volatility coming from financial markets, especially from cross-border spillovers, the founding premise for a gradualist approach to monetary policy is no longer valid.”
At its most recent interest rate vote, the MPC voted to cut the Bank Rate by 0.25% to 4.5% despite inflation having ticked up to 3% a few days earlier.
But Mann surprised central bank watchers when she voted for a 0.5% rate cut.
And in her speech yesterday she explained the rationale behind her decision, saying that while short-term data justified holding rates, longer-term, leading indicators pointed to the need for a 0.5% cut.
“I need to look six to nine months ahead for sources of inflationary pressures,” she said. “Incoming data evidences more extensive weakness in market sector output and consumer demand.”
The MPC will announce its next decision on interest rates on Thursday 20 March 2025.
