David Milliken

LONDON, (Reuters) – Bank of England policymaker Catherine Mann voted to increase interest rates by half a percentage point this month. She said that she did not see any indications of the public’s willingness to lower their expectations of price increases. This could have the potential of causing inflation too high.

Mann was among four members of Monetary Policy Committee, (MPC), who voted to increase interest rates from 0.2% to 0.75%. This is in contrast to the 0.5% hike supported by most of the committee.

In an interview with Britain’s Society of Professional Economists, she stated that “to me the data was still showing very solid expectations” and suggested that a 50 basis-point increase was necessary to lower those expectations.

She said that there was little data showing any reduction in wage growth, price rises or financial market activity other than the gilts.

British inflation rose 5.5% to January, the highest level in almost 30 years. Mann stated that all MPC members concurred that it was “way beyond our goals”.

However, policymakers had different opinions on how much Britain had recovered from COVID-19 and whether or not there would be long-lasting damage to Britain’s job market through lower participation or employment rates.

She stated that it was “very dangerous” to discuss permanent changes in the labour force participation during this time.

Official data indicates a decrease in the number of seniors looking for jobs or working, and around half million more people out of work overall.

A portion of this drop could also reflect European Union citizens who fled Britain during or after Brexit.

Mann stated that central banks around the world were blindsided by how fast energy prices rose, due partly to geopolitical variables they couldn’t predict.

Inflation would be expected to exceed last year’s levels if the inflation dynamics for 2022 were identical.

Also, the BoE must monitor the U.S. Federal Reserve’s and possibly the European Central Bank’s tightening of policy. Higher rates in other countries would improve British financial conditions but could lead to weakening sterling and higher inflation, said Sherwood.

Current expectations in financial markets are that the BoE will raise rates to 0.75 percent in March and 1.755% by 2022. These changes would be relatively minor considering Russia’s invasion.