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BOE’s Mann Says Policymakers Can Afford to Wait on Rate Cuts - BLOOMBERG
(Bloomberg) -- Bank of England rate-setter Catherine Mann said monetary policy is impacting inflation more quickly than economic theory suggests, allowing officials to wait before making big cuts to interest rates.
Speaking on a panel in London on Wednesday, Mann said that rate decisions can pass through to the pricing decisions of firms without delay, rather than the typical 18 to 24-month lag of monetary policy in textbooks.
While UK inflation has not been “vanquished” yet, Mann added that a quicker transmission mechanism would allow officials to back rate cuts when they are confident price pressures are contained.
The remarks help to explain why Mann was the only rate-setter voting against last week’s quarter-point reduction in the benchmark rate, only the second cut this year.
Mann has long been the most hawkish member of the Monetary Policy Committee, which has signaled a gradual approach to moving rates out of restrictive territory. She has favored an “activist” approach, meaning she is waiting for more evidence of underlying inflationary pressures being tamed before loosening policy.
“It is important to recognize as well that monetary policy can have immediate effects and that is why, again, part of my activist strategy is when I move, I will move big,” she said on a panel at a BNP Paribas event.
While Mann said the “olden day story” of long policy lags is still relevant, she said that research suggests that rate moves have an immediate effect on pricing decisions of firms and inflation expectations.
UK inflation has slipped below the BOE’s 2% target, though officials still remain wary over underlying pressures from the services sector and jobs market. Traders are fully pricing in just two quarter-point rate cuts by the end of 2025, a pace that would see the BOE lag behind other major central banks.
The BOE’s chief hawk stuck by her cautious stance on inflation, pointing to “pretty sticky” services inflation and the possibility of increased volatility in prices.
“For those two reasons I say that inflation has not yet been vanquished,“ said Mann, who self-identifies as an “activist” rather than a “gradualist” policymaker.
“An activist on the way down, is actually going to move less, but more when it is clear that the inflation persistence which has been embedded in the process has been purged,” she said.
