Bank of England official calls for higher rate hikes -
higher rate hikes

Bank of England official calls for higher rate hikes

Catherine Mann, a prominent member of the Bank of England’s Monetary Policy Committee (MPC), is calling for more aggressive interest rate increases owing to the weakening pound. Mann says the pound’s current value is adding to the constantly growing pressure on the economy, which is predominantly being caused by inflation rates.

The UK currently has the least aggressive interest rate strategy compared to the moves the US Federal Reserve has made and those predicted to be upcoming from the European Central Bank. The US Fed recently increased interest rates by a massive 0.75%. While addressing concerns domestically, such economic decisions also put immense pressure on the pound.

inflation rate UK

Mann was one of three MPC members to vote to up interest rates by 0.5% instead of the eventual 0.25% increase. According to a Reuters report, Mann commented, “In my view, a more robust policy move…reduces the risk that domestic inflation already embedded is further boosted by inflation imported via a sterling depreciation.”

Related article:   Australian rates rise again

Concerns are growing as the pound has weakened by 6% against the US Dollar over the past two months. This is despite the Bank of England being the first major central bank to implement interest rate increases, having now raised interest rates five consecutive times since December.

UK inflation rates remain a growing concern, as forecasting predicts this metric will hit 11% by October this year. Furthermore, the Bank of England has confirmed that interest rates could reach as high as 3.5% by August 2023 as they continue to face challenges surrounding hefty inflation rates.

Related article:   Reserve bank hikes rates 50 basis points to curb inflation

Mann believes inflation is gaining more momentum owing to the government support currently offered to households to ease the impacts of increased energy costs and living expenses. Furthermore, she thinks that interest rates should be raised more aggressively and that the Bank should be ready to cut them back down in the future, once the British economy needs more support.

interest rate UK

She continued: “I open the door to a policy rate reversal in the medium term when the domestic supports to demand fade and when weakness in external sources of demand bite.”

Related article:   Fixed vs. variable interest rates

Gertjan Vlieghe, Mann’s immediate predecessor on the MPC, suggested that the Bank of England should be more transparent on whether or not they would increase interest rates and to what end. Vlieghe believes it would be to the Bank’s benefit even if it exceeds their long-term plans.

Referring to the stance of the MPC, Mann expressed that there were divided views surrounding consumer behaviour, given the rise of inflation. However, Mann said she predicted consumer demand would lead to people using up savings they built up during the pandemic. In turn, she expects businesses to retain their pricing power in the short term and not need to reduce costs to maintain business.

Leave a Comment

Your email address will not be published. Required fields are marked *