Bank of England policymaker Catherine Mann has warned that above-target inflation is becoming embedded in the British economy, strengthening her argument for tighter monetary policy as price growth approaches another critical wage-setting period.
Mann said inflation has remained above the Bank’s 2% target throughout her tenure and argued that its persistence is becoming increasingly difficult to dismiss as temporary.
Her immediate concern is the outlook around the turn of the year.
The Bank’s projections show inflation rising above 4% in early 2027, placing another inflation spike near the period when many British employers and workers negotiate annual pay increases.
That creates a potential second-round effect: workers facing persistently higher prices may seek stronger wage increases, while businesses facing higher wage and energy costs may attempt to pass those expenses through to customers.
Mann has voted for a quarter-point increase in Bank Rate at the Bank’s last two policy meetings.
She has argued that current real financial conditions remain insufficiently tight and that policymakers cannot simply depend on higher bond yields and market risk premiums to perform the work of monetary policy.
The distinction matters.
Higher nominal borrowing costs do not necessarily restrain demand sufficiently if those yields primarily reflect greater inflation uncertainty rather than tighter real financial conditions.
Britain therefore faces a difficult combination of persistent price pressure and only moderate demand.
For markets, Mann’s position reinforces the possibility that the Bank of England may still need to raise rates even as higher energy costs and elevated borrowing costs weigh on economic activity.
The next question is whether the broader Monetary Policy Committee moves closer to Mann’s position as policymakers receive additional inflation, wage and employment data.
