The Bank of England (BoE) raised interest rates to 4% earlier this month, but one of its more hawkish rate-setters, Catherine Mann, has warned that more tightening is necessary to bring down inflation. Mann said that the BoE had been “insufficiently” aggressive in dealing with inflation and cautioned that a pivot is not imminent. Without further rate hikes, high inflation could persist into 2024, she added. In this article, we will take a closer look at Mann’s comments and what they mean for the UK economy.
Inflation Risk Requires More Tightening
Mann warned that a preponderance of turning points was not yet in the data and that more tightening was needed to bring down inflation. Without further rate hikes, high inflation could persist into 2024, she said. This sticky inflation could lead to more UK businesses taking a backward-looking approach, and therefore make it even harder to bring prices down. Mann’s comments suggest that the BoE may need to raise interest rates further in the coming months to achieve its inflation target of 2% per year.
Businesses Will Struggle to Tackle Inflation
Mann’s warning that high inflation could lead to more UK businesses taking a backward-looking approach is significant. If businesses are more focused on the past than the future, they may be less willing to invest in new products or services, which could stifle innovation and hinder economic growth. This is why it is so important for the BoE to tackle inflation as quickly and aggressively as possible.
March Rate Hike Expected
Markets are currently pricing in an expected 25 basis points rate hike at the March meeting, taking the Bank Rate to 4.25%, its highest since October 2008. This would represent a slowdown in the pace of tightening by the BoE, but it would still be a significant move in the context of the current economic climate. The fact that markets are already expecting a rate hike in March suggests that investors are taking Mann’s warning seriously and believe that further tightening is necessary.
In conclusion, Catherine Mann’s warning that more tightening is necessary to tackle inflation is a timely reminder of the challenges facing the UK economy. While the recent rate hike to 4% was a step in the right direction, it may not be enough to bring down inflation in the long run. With markets expecting a further rate hike in March, it will be interesting to see how the UK economy responds in the coming months. One thing is certain, however: the BoE’s inflation remit must be achieved one way or another, and failing to do enough now risks the worst of both worlds.
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