Central bank policymaker says curbing inflation is necessary to restore consumer confidence and spending
The Bank of England still has more work to do on inflation to keep prices under control, according to central bank decisionmaker Catherine Mann, calling into question the prospect of more interest rate cuts in the immediate future.
Mann, a member of the BoE’s Monetary Policy Committee, told an audience at London’s Resolution Foundation that households are still bearing the scars of 2022’s huge jump in inflation, leading to less spending and a more conservative approach to their finances.
While higher rates normally don’t spur economic growth, Mann hinted rates would need to stay elevated to restore consumer confidence and in turn, lead to more spending.
“High inflation itself is behind scarring, income uncertainty, and weak consumption growth,” she said. “Therefore, monetary policy needs to continue to focus on reducing inflation to achieve the environment of price stability.”
The central bank held rates at 4% last month, a decision Mann supported, while she also voted against its quarter-point cut in August.
Inflation rocketed to a peak of 11.1% in October 2022 but dived by nearly 10% in the two years after. However, it’s been on a steady upward path since September, climbing to 3.8% in August, and Mann signalled her view that rate cuts would be ill-advised with that trend in mind.
“In light of elevated inflation and expectations, maintaining restrictiveness for longer would be appropriate,” she said.
Yesterday, the BoE’s chief economist Huw Pill also called for a careful approach to rate policy, laying out the need for “conservative central banking” in the current climate.
“Price stability over the medium term is… the appropriate objective for monetary policy,” Pill said, pushing back at clamour for more collaboration between the government and the Bank to tackle the country’s economic challenges.
The Bank is set to meet for two further rate decisions before the end of the year, on November 6 and December 18. Landing squarely between those two announcements will be the government’s budget, pencilled in for November 26.
