Catherine Mann, a policymaker at the Bank of England, stated on Wednesday that, in comparison to the United States and the Eurozone, Britain has a severe inflation problem due to rising prices and increasing indications that underlying pressure will endure.
Since she joined the BoE in 2021, Mann has been the Bank of England’s most vocal supporter of interest rate rises. Mann additionally recognized the potential danger of future financial market turbulence as the world economy adapted to elevated borrowing prices.
British consumer price inflation recorded a 41-year high in October at 11.1%, and in April it was the joint highest among the world’s leading advanced economies with Italy at 8.7%, leading to a sell-off in the bond market as investors made wagers on further BoE rate increases.
Mann stated that core inflation, which excludes volatile energy and food prices, is a better measurement for anticipating future inflation trends, which rose to their highest level since records began in 1992 at 6.8% last month.
Mann further stated that while headline inflation took longer to return to the core rate than elsewhere, businesses were to blame for rising core inflation and wages.
In a policy discussion that was hosted by Swiss asset manager Pictet, Mann stated: “The gap (between headline and core CPI) that I have in my country is more persistent than the gaps that we see in either of my neighbours, the U.S. or the euro area.”
She further continued: “There is a gap between the headline, which is incorporating energy, which went up really high and now has come down, and (the) core, where we do start to see the implications coming through pricing channels, through wage negotiations, into something that is persistent.”
The unused money from the COVID-19 epidemic had increased British households’ ability to endure price rises, while Mann theorized that the increase in the minimum wage—which rose by 9.7% in April—might have had repercussions further up the pay scale.
The BoE has raised rates a total of 12 times in a row, from 0% in December 2021 to 4.5% this month. The market anticipates that these rates will eventually reach 5.5% this year after last week’s inflation data was greater than forecast.
Andrew Bailey, governor of the BoE, and other top officials at the central bank have stated that they will act if there are indications of consistently high inflation pressure.
Mann also noted a conflict between the long-term interest rate levels required to contain inflation and those required for a sound financial system, which might result in “an awful lot of volatility” for inflation, asset prices, and currency rates.
She further added: “The metaphor that is appropriate here… is: ‘The water is calmest before the falls’.”
- Published By Team Timeswire