Rate hold now needed, says BoE's Mann – but door still open for big cuts

The time is now right for the Bank of England to hold interest rates steady, a key decisionmaker at the central bank has said, although she’s willing to consider a series of big rate cuts if the economic outlook deteriorates.

Monetary Policy Committee member Catherine Mann said on Tuesday that she saw a firm case for the Bank’s base rate, a key driver of UK mortgage rates, to stay unchanged for a “persistent” period amid fears of rising inflation.

But Mann, speaking at an event to mark the 100th anniversary of the Bank of Mexico, also suggested her stance could change if the economy sees a downturn.

“A more persistent hold on Bank Rate is appropriate right now, to maintain the tight (but not tighter) monetary policy stance needed to lean against inflation persistence persisting,” Mann said, according to a transcript released by the BoE.

“However, I stand ready for a forceful policy action, in the form of larger, more rapid Bank Rate cuts, should the downside risks to domestic demand start materializing.”

Mann has opposed most of the Bank’s rate cuts during the past year and voted against this month’s move to cut the base rate by 25 basis points.

Still, while inflation fears are rising – the Bank recently upped its September inflation forecast to 4%, and signalled that a return to more normal levels isn’t likely in the near term – concerns are also hardening about the economy.

On Tuesday, UK long bond yields jumped close to a 27-year high, indicating growing unease in financial markets about the economy’s direction and putting pressure on the Starmer government to adjust its fiscal approach.

Chancellor Rachel Reeves is set to deliver a closely-watched budget in the months ahead, one that’s likely to curb spending and raise taxes – potentially including a new national property tax as part of a stamp duty overhaul.

The BoE has lowered its base rate by a full 1.25% since August last year, introducing five 25-basis-point cuts and bringing that influential benchmark down to 4%.

But it faces a difficult balancing act on rate policy in the months ahead, with other analysts viewing the inflation outlook as a big impediment to further cuts.

Last month, the consumer price index (CPI) jumped to an 18-month high, Office for National Statistics (ONS) data showed, with price growth broad across a range of measures including air fares, petrol and diesel costs, and food prices.